The Oval, An Oval, 160 Shelbourne Road, 160 Bóthar Shíol Bhroin, Ballsbridge, Droichead na Dothra, Dublin 4. Baile Átha Cliath 4.
Tel + 353 (0)1 677 1700 Fax + 353 (0)1 661 5375 info@eirgrid.com
www.eirgrid.com Group Structure
plc
* **
Interconnector UK Holdings Telecoms Limited Limited Limited
Tynagh Power Station, Co. Galway. * SONI is a 100% subsidiary of EirGrid UK Holdings Limited ** SEMO is a joint venture between EirGrid plc and SONI Limited EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
EirGrid Group is the licensed electricity Transmission System Operator and Market Operator in Ireland and Northern Ireland and owns and operates the East West Interconnector between Ireland and Great Britain. Our Mission To provide quality, efficient, independent transmission and market services for the benefit of everyone across the island of Ireland.
Contents
Chairperson’s Report 2 Chief Executive’s Review 5 Our Strategy 10 Financial Review 12 Operating the Power System 16 Operating the Single Electricity Market 22 Operating the East West Interconnector 24 Transmission System Map 26 Developing Transmission Infrastructure 30 Europe 37 Our Customers 38 Corporate Social Responsibility 44 The Board 50 Organisational Structure 56 Executive Team 58 Financial Statements 61
1 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Chairperson’s Report
I am pleased to present EirGrid’s reliable supply of electricity at a Annual Report for the 12-month period competitive price. No region should to 30 September 2013. It has been have its potential limited by lack of a significant year for the EirGrid Group a good power supply. The benefits of with the major milestone of the 500 MW renewable energy must be harnessed. HVDC East West Interconnector entering All this requires major strengthening into commercial operation. It has also of the transmission grid in both been a year of transition for the Group jurisdictions. with Fintan Slye taking up position The major grid development projects as Chief Executive and a new Strategy proposed by EirGrid have provoked being developed setting the way forward a strong public reaction and raised for the next five years. a number of legitimate questions This Annual Report presents the which will be addressed. As a company operations of the EirGrid Group owned by the people it is our desire to for Enterprise, Trade and Investment in comprising system operation and market develop the ‘right’ electricity network Northern Ireland, Arlene Foster MLA, and operation across the island, operation which utilises the best technology her officials for their support. of the East West Interconnector and and most up-to-date information and Finally I would like to say that development of grid infrastructure in which strikes the best possible balance I am pleased to take up the role of Ireland. It also includes our approach to between costs and competitiveness, Chairperson of the Board of EirGrid and Corporate Social Responsibility and to on the one hand, and the impacts on look forward to working with fellow our customers and stakeholders. the environment and heritage, on the directors and the management and staff The achievements during the year are a other. We are committed to consulting of the company in Dublin and Belfast for result of the capabilities and dedication meaningfully with communities and the good of the people on the island of of the Group’s staff and management, for other stakeholders in this process. We Ireland. which I thank them. want our dealings with communities The profit before tax of €61.1m for the and concerned individuals to be open, year to 30 September 2013 compares honest and professional. We want to to a profit before tax of €20.8m for learn from experience as we continue the year to 30 September 2012. The our work. We fully appreciate the John O’Connor CHAIRPERSON East West Interconnector became fully importance of public trust and commercially operational in May 2013 confidence to the successful delivery of and contributed €34.0m in profits our mandate. before tax. This included profits of I would like to express my thanks to € 25m due to a timing difference my predecessor Bernie Gray for her between tariff support commencing on stewardship of the Board and the 1 October and the go-live date of May. company during her term of office. These higher profits will be returned to I also want to express my gratitude to customers in future tariff periods. An the Board members for their commitment interim dividend of e4m is provided for and service as Directors during the year. in the financial statements and this was I would like to extend my appreciation paid to the Exchequer in November 2013. to Minister for Communications, Energy EirGrid Group bears a heavy and Natural Resources, Pat Rabbitte responsibility for ensuring that people, TD, and his officials and staff for their communities and businesses throughout support for EirGrid plc. I would also the island of Ireland have a safe and like to extend my gratitude to Minister
2 East West Interconnector Converter Station at Woodland, County Meath.
3 4 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Chief Executive’s Review
I am pleased to present the Chief Profit before tax for the year was Executive’s Review for my first year as €61.1m, an increase of €40.3m on Chief Executive of the EirGrid Group. the previous year, of which €34.0m is related to EWIC. The trading During the year we again delivered on performance was substantially impacted our core remit in the areas of system by the timing of the interconnector operation and wholesale electricity achieving full operational status. market operation. These services are Adjusting for this affect, estimated critically important for our customers underlying profitability for the Group for and stakeholders and strategically the year was €18.3m and all regulatory important for the island of Ireland. over-recoveries will be returned to The East West Interconnector (EWIC) customers in future tariff periods. went into commercial operation. It is Chief Executive Fintan Slye. leading to increased competition in Grid Development the Single Electricity Market and this Part of EirGrid’s core remit under is resulting in downward pressure on legislation is to ‘ensure the development wholesale electricity prices. Wholesale of a safe, secure, reliable, economical prices decreased by 8% over the first 6 and efficient’ grid. The aim of the Grid25 months of its operation. Strategy is to fulfil this remit and put Internally we restructured the appropriate cost-effective electricity organisation to operate as an all-island infrastructure in place to enable Ireland Group as part of our efforts to improve to have the electricity transmission our efficiency and effectiveness. We infrastructure needed to support the also developed a new Strategy to set economy and society into the future. the direction for the Group over the Three major infrastructure projects next five years and new Values for the - Grid West, Grid Link and the North- way we behave as an organisation. Our South project - have been in the public new Strategy and examples of living the consultation phase. We engaged in Values are presented throughout this extensive programmes of consultation Annual Report. including a series of open days across the country. We acknowledge the strong Last year there was extensive public public concerns in relation to the consultation on three major infrastructure infrastructure development. Over the projects. There was strong public reaction coming months we will be examining and to the consultations with over 35,000 responding to the feedback received. submissions received on the Grid Link We have announced a series of Project. We are committed to responding initiatives to address the key themes in a meaningful way to the issues raised in raised and are committed to the consultations and we have announced implementing them. a series of initiatives to address the key themes raised. The TSO Certification process for Ireland and Northern Ireland to implement European Directive 2009/72/ Financial Results EC concluded. As a result the System The successful completion of EWIC in Operator in Northern Ireland will be 2013 was a major milestone for the taking on the transmission planning Group. The final cost of the project was role in Northern Ireland, making the €562m compared to the original project responsibilities of the System Operator budget of €601m. more similar in both jurisdictions.
5 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Innovation – Renewables Our Customers and Stakeholders and Smart Grids As an organisation, delivering for our Progress continued on the DS3 customers is very important to us and it programme – our overarching project to is our ambition to continually improve enable secure operation of the power our performance in this area. We are also system in real time with increasing committed to working constructively with amounts of variable renewable all of our stakeholders, our shareholders generation. During the year the new and the regulatory authorities. The system service products were developed importance of these relationships is and the technical changes to the Grid prominent in our new Strategy. Code on Rate Of Change Of Frequency We engage in significant stakeholder (ROCOF) were set out. Engineers Ireland Excellence consultation on our major projects. Award presented to the EirGrid During 2013 the acceptance phase of The EirGrid Group’s Public Consultation Group for the East West the Gate 3 process went live. There are Roadmap sets out how, and by what Interconnector Project. now adequate connection agreements means, members of the public can in place to enable Ireland’s 2020 participate in the project development renewables targets to be met. process and is aimed at making participation as convenient as possible In the Smart Grids domain, we continued for all parties. Notwithstanding this, one with the Smart Grid Innovation Hub and of the initiatives we have put in place in the demonstration projects initiative response to recent feedback is to review which encourage innovation in new grid our consultation process to enhance applications. We also launched a Smart future public engagement. Grid iPhone app which enables users to see key energy related real-time data and facilitates smart energy use decisions. Corporate Social Responsibility (CSR) Europe Doing business responsibly and sustainably is a cornerstone of the The European dimension to the electricity EirGrid Group’s activities and our new industry is increasing in scale and Strategy. Our CSR engagement ranges importance and we have established a from work with our chosen charities At the launch of the EirGrid Group team to deliver on our responsibilities for in Ireland and Northern Ireland to SmartGrid application. European market integration. We were facilitating a sustainable power system pleased when Ann Scully was appointed through the connection of renewable to the Board of ENTSO-E, The European energy sources. A highlight for us in Network of Transmission System Operators 2012/13 was achieving the Business in for Electricity, enhancing and reinforcing the Community Ireland’s (BITC) ‘Business our central role in Europe. Working Responsibly’ Mark. This is the Connectivity to Europe is increasingly certification in Ireland for responsible important in the context of a single and sustainable business practices. European Market. We signed a We were also pleased to win the Memorandum of Understanding with Chambers Ireland CSR Award for RTE, the French TSO, to facilitate the International Excellence in a joint next stages of investigation of an initiative with ESB for the roll out of Ireland-France Interconnector. fuel efficient stoves in Eritrea.
6 National Control Centre, Dublin.
7 Tynagh Power Station, Co. Galway.
8 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Health, Safety and Environment A key challenge for us during the 2012/13 was another successful year for coming year will be engaging effectively the EirGrid Group in relation to health, and working closely with people and safety, welfare and the environment. communities throughout the country, There were no accidents in the EirGrid and in particular those in proximity Group during the year. We retained to proposed new transmission OHSAS18001 and ISO14001 certification developments. We are committed to in both Dublin and Belfast and were working with all parties in an open and successful in having the OHSAS18001 constructive way to address the issues certification extended to include the and concerns that exist in respect of East West Interconnector. new transmission lines. The Secretary of State for Business, We were delighted to receive a Category Finally, I would like to take this Innovation and Skills, RT Hon, 1 Major Award under the Utilities opportunity to thank the Board, Vince Cable MP visits the National category at the Annual Occupational management and staff of the EirGrid Control Centre, Ballsbridge. Safety Awards hosted by the National Group for their support and assistance Irish Safety Organisation (NISO) and the throughout the year. Northern Ireland Safety Group (NISG). This reflects the consistent commitment across the group to the highest standards of health, safety and welfare.
Fintan Slye CHIEF EXECUTIVE Our People The performance of our staff in Belfast and Dublin was critical to our success during the year. In a very fast-changing world, their flexibility and willingness to embrace change have been key factors in our success. A balance of skills, experience, knowledge and diversity is central to an effective organisation, and will remain a priority as we continue to evolve.
Looking Forward In the next year I am looking forward to leading the Group in the implementation of our new five year Strategy which focuses on delivery of our central role in the electricity industry and on contributing to the delivery of national and European energy policy.
9 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Our Strategy
The EirGrid Group has a central independent role in the electricity VISION industry through which we contribute to To be a world leading grid company the economy and success of Ireland and Northern Ireland. After seven years and many milestones having been achieved, MISSION we developed a new Strategy to set the To provide quality, efficent, independent transmission and market services direction for the Group for the next for the benefits of everyone across the island of Ireland five years. The Strategy recognises the pivotal role that the Group plays in the industry VALUES and in delivering on national and • We act with integrity European energy policy. It strengthens • We deliver on our promises our commitment to behave in a socially • We behave in a socially responsible manner responsible manner and to respect the • We innovate to drive value for all our customers communities we interact with through • We recognise our people are our greatest asset our work. It challenges us to be the best we can be and to drive value and deliver for our customers and the economy. SAFETY IS NEVER COMPROMISED
CAPABI S AND LITY CE TO D UR EL SO IV
RE ER
R EFFECTIVE &
R E QUALITY
E S
O
EFFICIENT TIMELY DELIVERY V
I
U
OF GRID L
R OPERATIONS E
C
INFRASTRUCTURE D
E
S
O
T
A
Y N
T
D
I
L
C
I
A B
P A
A WORLD LEADER P B
A
I EUROPEAN IN SMART GRIDS & C L
I D T INTEGRATION THE INTEGRATION Y N OF RENEWABLES A T O S E D C E R L I U V O E RESPECTED S R E AND TRUSTED R ORGANISATION
R R ES VE OU LI RC DE ES TO AND CAPABILITY
10 EirGrid Group - Keeping the lights on.
11 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Financial Review
Key Financial Highlights €’m 2013 2012
Revenue 622.1 542.2 Direct costs (459.2) (438.8) Other operating costs (89.4) (80.1) Operating profit 73.5 23.3 Net interest charge (12.4) (2.5) Profit before tax 61.1 20.8
The East West Interconnector (EWIC) normal regulatory practice, these was completed in 2013 at a total cost of over-recoveries will be corrected for in €562m, compared to the original project future tariffs. The profit before tax for budget of €601m. The financial scale of 2013 was €61.1m, however, excluding the project, and the related borrowings, over-recoveries management’s estimate has had a transformative impact on the of the underlying operating profit for the Group’s balance sheet. year was €18.3m, subject to regulatory Profit before tax for the year to uncertainties. € September 2013 was 61.1m, an The Group’s revenue is primarily derived € increase of 40.3m on the previous from regulated tariffs. year of which €34.0m was relating to EWIC. The trading performance Direct costs primarily consist of: was substantially impacted by the • The regulated charge payable timing of the interconnector achieving to ESB and NIE as owners of the full operational status. It had been transmission system in Ireland and anticipated that the interconnector Northern Ireland respectively; would be fully operational on 1 October 2012 and tariff support for the projected • The cost of purchasing from operational costs commenced from that generators a range of services date. Full operational performance was required for the secure operation achieved in May 2013 and as a result of the system; the level of operational costs incurred • Constraint costs payable when the was lower than had been anticipated. secure operations of the system € Approximately 25m of the total EWIC requires changes to be imposed € profits of 34.0m was due to the on the market based schedules of delayed start up. generators; and
The profit before tax for the Group • The costs of implementing a range includes over-recoveries on regulated of energy demand initiatives. tariffs. This was due to a number of uncertainties that are an inherent aspect Other operating costs include costs of operating in a regulated environment, associated with the operation of EWIC, and the associated accounting treatment employee costs, professional fees, IT costs, of these matters. In accordance with depreciation and other corporate costs.
12 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Regulation Financing The Group’s Transmission System In the current difficult financial Operator (TSO) activities in Ireland environment a priority for the Group and Northern Ireland are regulated has been to maintain strong banking by the CER and URegNI respectively. relationships. In the year to September In its role as Market Operator for the 2013 this has enabled the Group to SEM, the Group is regulated by the complete the investment in the East SEM Committee, which comprises the West Interconnector and also to manage CER, URegNI, an Independent Member the liquidity requirements associated and a Deputy Independent Member. with the SEM. The Group also holds two licences as Interconnector Operator for EWIC, one from CER and one from Ofgem. In advance of each tariff period the Group submits to the relevant regulatory authority forecasts of customer demand, operating costs and other revenue requirements. Following a detailed review process which includes public consultation, the regulator issues a formal determination of the allowable revenue to be recovered by the business. As with any forecast there can be variations between the projections and the actual revenue recovery, or cost outturn, resulting in regulatory under or over-recoveries. Any such under or over recoveries are adjusted for in the price determinations for subsequent periods. This can give rise to volatility in the reported statutory earnings of the Group, as current accounting regulations do not permit results to be smoothed through the anticipation of under or over-recoveries.
13 14 Values Integrity ‘We act with integrity’
In 2013 we engaged in very extensive public consultation on major grid development projects. Concerns were expressed during the consultation and in the submissions received. We are committed to acting with integrity and to making a real and meaningful response to what we have been hearing from communities and members of the public. We have identified a number of themes in the submissions made and have put a number of initiatives in place to respond to these themes. We will ensure that the initiatives identified are fully implemented. We are committed to continuing to listen and to respond with action.
Edward Blake, Sligo and Valerie Hedin, EirGrid Group pictured at an open day on the Grid West project.
15 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Operating the Power System
The EirGrid Group is responsible for that measures the severity of system managing electricity supply and demand disturbances relative to system size. in real-time and for controlling flows System minutes lost reflect the amount of power on the transmission system of demand not supplied due to faults in Ireland and Northern Ireland. The on the transmission system. From transmission system consists of a meshed January 2013 to December 2013, the network of high voltage lines, cables and total number of system minutes lost was substations which together transfer bulk 0.393 in Ireland and 7.25 in Northern power from generators to load centres. Ireland. The high figure for Northern The transmission system or “Grid” is the Ireland stems from events which backbone of the electricity system. occurred on 22 March. Severe weather conditions, which resulted in ice effects The Grid is operated from the National The National Control Centre, on the network which have only been Control Centre (NCC) in Dublin and Ballsbridge, Dublin. encountered once before in over two Castlereagh House Control Centre (CHCC) decades, caused a total of 152 faults on in Belfast. Electricity demand the system and led to two major load requirements must be met in real-time shedding incidents, one in the morning by electricity generation. Maintaining this and one in the evening. The event in balance between electricity demand and the morning led to the disconnection supply is the responsibility of the control of approximately 159,000 customers in centres. Electricity is generated at power North and Central Belfast for 5 minutes. stations, including wind farms, located at The incident in the evening led to a various sites across the island. Electricity total blackout of Belfast and much of is transported around the country on the County Down, with 320,000 customers high voltage transmission network to the variously disconnected for between 8 main load centres, such as cities, large and 15 minutes. The events of 22 March towns and large industrial sites. We seek alone gave rise to 6.879 system minutes to operate the transmission system in lost. These incidents would have been a safe, secure and economic manner at Joe McCready and Cliff McLoughlin more severe had it not been for the all times. The dispatch of generation at the Control Centre, prompt and effective actions of control is performed in accordance with Single Castlereagh House, Belfast. centre staff in Belfast. Electricity Market principles, which are designed to minimise production costs. Generation availability is a measure of the capability of generators to deliver Electricity Demand power to the grid. In order for the EirGrid Group to operate the transmission system During the period from January 2013 securely and economically it is necessary to December 2013, all-island system for generators to maintain a high rate demand increased. Energy consumption of availability. All-island generation for the period totalled 34.86 TWh availability increased marginally to (terawatt hours) representing a 0.64% 87.08% in 2013, from 86.91% in 2012. increase on the previous 12 months. The The generator forced outage rate dropped all-island maximum system demand in from 7.34% to 6.96%. 2013 was 6,229 MW (megawatts) and occurred in January 2013. Generation margins remained within standards throughout 2013. System Performance System performance and reliability is measured in terms of ‘system minutes lost’, an international benchmark
16 Arklow Banks Windfarm.
17 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Renewables Operations Highlights The integration of more variable • All security of supply Key renewable forms of generation on the Performance Indicators (KPIs) were power system means transmission achieved throughout 2013, with operators must consider an additional the exception of the KPI for system complex range of supply and demand minutes lost in Northern Ireland. issues. These include the operational This was due to the extreme adverse challenges of switching to more variable weather conditions in Northern non-synchronous generation sources Ireland in March. (e.g. wind farms), security of supply • There were some significant in terms of managing an increasing outcomes of the DS3 programme variety of generation technology types including: and the integration and use of Smart GIS infrastructure located in Grid technologies allowing greater user • A multi stage consultation Tarbert station. participation in the power system. process for System Services, including consultations on The largest share of renewable the approach used and the generation in Ireland and Northern required products and financial Ireland is provided by wind generation. arrangements. The TSOs At the end of 2013, the amount of published the TSO System wind generation installed on the island Services Recommendations paper reached 2,395 MW, and the maximum in May 2013. instantaneous all-island wind generation • The approval of a number of Grid in 2013 was 2,274 MW. Total installed Code modifications in Ireland and renewables on the island has now the corresponding modifications reached a combined total of 2,750 MW to the Wind Farm setting – 2,162 MW in Ireland and 588 MW in schedule in Northern Ireland. Northern Ireland. • A record 893 GWh of wind power The EirGrid Group established the DS3 was generated in December 2013, Programme “Delivering a Secure and Tynagh Power Station. representing approximately 30% of Sustainable Electricity System” to help all power generated that month. deliver on the 2020 renewable electricity targets. DS3 is designed to ensure the • In 2013 instantaneous wind safe, secure and reliable operation of the penetration on the island reached up power system in Ireland and Northern to 50% of system demand on 16 days Ireland with increasing amounts of throughout the year. variable renewable generation. In order • Approximately 16% of all-island to achieve the renewable targets the electricity demand was produced by generation plant portfolio on the island wind during the year. will be transformed from the traditional mix of conventional generation - mostly gas and other thermal plant - to a portfolio where in 2020, variable wind generation will account for 37% of all electrical power generated on the island.
18 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
All-Island Demand Growth Rates 2013 Monthly Growth Rate 3 month rolling average 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 -6.00% -8.00%
All-Island Weekly Peaks 2013 2012 7,000
6,500
6,000
MW 5,500
5,000
4,500
4,000 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec
All-Island Wind Capacity 2007-2013 Ireland Northern Ireland 3,500 3,000 2,395 2,500 2,184 2,020 2,000 1,715 1,566 1,500 1,171 935 1,000 Installed Wind MW 500 0 2007 2008 2009 2010 2011 2012 2013 Calendar Year 19 SUPPORT FOR INVESTMENT
INTRODUCTIONS AND COLLABORATIONS
TECHNICAL EXPERTISE COMMERCIALISATION
PROTOTYPE AND TRIALLING
CONCEPT BUSINESS MODEL REVIEW
20 Values Innovation ‘We innovate to drive value SUPPORT FOR for our customers’ INVESTMENT The Smart Grid Innovation Hub (SGIH) is a collaborative initiative by the EirGrid Group and NDRC (National Digital Research Centre) to
INTRODUCTIONS AND promote the development of innovative Smart COLLABORATIONS Grid solutions on the island of Ireland by taking advantage of the unique aspects of the electricity system. It has been in operation since October 2012 and has provided a wide variety of supports TECHNICAL to a large number of companies during this time. EXPERTISE In its first year it has engaged with over 500 COMMERCIALISATION individuals and 130 organisations and has provided extensive supports ranging from introductions and collaborations, support for investment, idea steering and filtering and commercial trials.
PROTOTYPE AND TRIALLING
CONCEPT BUSINESS MODEL REVIEW Smart Grid Innovation Hub support structure.
21 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Operating the Single Electricity Market
The Single Electricity Market (SEM) is a combination of cold weather, high incorporated a total of 21 changes. the wholesale electricity market which demand and short supply, which led to There were six general Market Operator has operated in Ireland and Northern a corresponding elevation in SMP. User Groups held and three dedicated market training sessions for new SEM Ireland since November 2007. It is a In 2012/13 the processing of energy participants with 14 new parties and competitive, sustainable and reliable invoicing and settlement totalled 43 new units registering of which 5 market, designed to deliver long-term approximately €2.5 billion (including were Interconnector Users. all-island economic and social benefits. imperfections) in addition to capacity The Single Electricity Market Operator settlement of approximately €518 operates and administers the SEM. million. All SEM collateral requirements EirGrid Group is licensed as the Market were fully maintained. The market Operator in Ireland and Northern Ireland operation was maintained to a high and is regulated by the Commission level of performance. Participant and for Energy Regulation in Ireland and customer queries were on average the Utility Regulator of Northern responded to within three working days. Ireland, acting jointly through the SEM In addition, the availability of SEM Committee. central market system applications was maintained at a high level (99.78%). Operational Review The Modifications Committee considered During the 2012/13 financial tariff 17 changes to the SEM with the SEM period the SEM operated smoothly, Committee approving 14. Modifications transparently setting prices, invoicing ranged from determining potential rules participants in a timely fashion and for a new generator type (Compressed transferring funds securely. The Air Energy Storage) to a change to System Marginal Price (SMP) has been regulate the position regarding security reflective of supply and demand and of over participant collateral accounts. international fuel prices, particularly Two new versions of the Trading and gas. Wholesale gas prices in March Settlement Code were published and 2013 were unseasonably high due to two new Central Market System releases
System Marginal Price and Gas Price Volume Weighted Average SMP Average Gas Price €100 100 €90 90 €80 80 €70 70 €60 60 €50 50 €40 40 €30 30 €20 20 Gas Price (Pence per Therm) Gas Price (Pence €10 10 System Marginal Price ( € /MWh) Marginal System €0 0 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13
22 Claire Breslin, SEMO.
23 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Operating the East West Interconnector
At 264km in length, 187km of which is EWIC was a complex project and price of electricity in the SEM, which beneath the Irish Sea, the East West represents a significant engineering is narrowing the gap on the cost of Interconnector (EWIC) links the achievement. We were honoured that electricity between the electricity electricity transmission grids of Ireland this project won Engineers Ireland markets on the islands of Ireland and and Great Britain, from converter stations Project of the Year Award in 2013. Great Britain. Analysis of the impact of at Woodland in Co. Meath and Shotton in the first 6 months of operation indicates The 500 MW capacity available on EWIC North Wales. This is the largest voltage a reduction of 8% in the load weighted sourced conversion (VSC) High Voltage in both the import and export directions average wholesale electricity prices. Direct Current (HVDC) scheme currently equates to enough electricity to power EWIC is also facilitating the reduction in operation today. The interconnector 300,000 homes. EWIC customers are now of curtailment for renewable energy went into partial commercial operation actively competing for annual, seasonal, generation through the use of System in December 2012 and full commercial quarterly and monthly long-term auction Operator trades directly with National operation in May 2013. products and for daily auction products. Flows on the interconnector have been Grid Electricity Transmission or through It represents a significant investment predominantly from Great Britain to our trading partner Statkraft in Great € ( 562m) that has considerable benefits Ireland. The graph below shows the Britain. As a result of priority dispatch for the island of Ireland by improving upward trend in strike prices for various trades, wind curtailment was reduced by security of supply, by increasing 140 GWh and there was an associated auction products for flows in this competition in the market and by reduction in dispatch balancing costs direction. The congestion rent from this helping the country reach its renewable of over €5.5 million in the period from activity is increasing the benefits of EWIC electricity targets. It is a fully regulated June to December 2013. for consumers. interconnector, fully compliant with European and national regulatory The commercial activity on EWIC has requirements in relation to open access. led to a downward pressure on the
Import Capacity Product Auction Price per Auction
13 12.57
12
11 10.45 10.72 10.1 10
9.12 9 8.3 8.06 8.67 8 7.61 7.51 7.06 Annual 7 Seasonal
6 5.48
Import Auction Strike Price ( € ) Strike Import Auction 6.21 5.09 Quarterly
5 Monthly
4.16 4
3 May 2012 Nov 2012 Jun 2013 Dec 2013
24 The East West Interconnector Converter Station at Portan.
25 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Transmission System 400, 275, 220 & 110kV
26 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Dublin Area
Belfast Area
400kV Lines 275kV Lines 220kV Lines 110kV Lines 220kV Cables 110kV Cables HVDC Cables 400kV Stations 275kV Stations Cork Area 220kV Stations 110kV Stations
Transmission Connected Generation Hydro Generation Thermal Generation Pumped Storage Generation Wind Generation
27 28 Values Safety ‘Safety is never compromised’ A fundamental value of the organisation is that “Safety is Never Compromised”. This relates to anyone who could be affected by our activities and is reflected in every aspect of how we conduct our business. Our achievements in this important area of the business were recognised in 2013 when the EirGrid Group won the Major Utilities Safety Award at the National Irish Safety Organisation’s Annual Awards Ceremony. In winning this award we demonstrated exemplary performance in 10 key areas of occupational health and safety management. The framework for this success is an integrated Health, Safety and Environmental Management System and a corporate culture that is led from the top and positively promotes safety.
Priscilla Woods NISG Chair, Lucinda Creighton TD presenting Margaret Jacob, EirGrid, with the award for Utilities Provider along with Pauric Corrigan, NISO President at the 22nd Annual Occupational Safety Awards 2013.
29 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Developing Transmission Infrastructure
Developing infrastructure to support • A new 220kV station at Great Island, sustainable economic growth and which will enable the connection of security of supply into the future is a new power plant, was energised in of paramount importance. Grid25 is November; and the EirGrid Group’s programme for the • The energisation of Mount Lucas long-term development of Ireland’s Wind Farm took place in December. transmission grid. It includes the upgrading of over 2,000km of existing transmission circuits using new and Public Participation and existing conductor technologies and the Community Engagement construction of over 1,100km of new The EirGrid Group’s Public Consultation transmission circuits. During the year we Road Map sets out how, and by what Cloghran 110kV station. were progressing transmission projects means, members of the public can at various stages of development in participate in the project development every county in Ireland. The EirGrid process and is aimed at making Group has been working closely with ESB participation as convenient as possible Networks to improve the effectiveness for all parties. During 2013, in line with of how we work together to deliver and this Road Map, there was extensive maintain infrastructure for customers. public consultation on the three major Grid25 projects - the North-South 400kV In 2013, significant progress was made Interconnector, the Grid West and the in a number of areas, notably: Grid Link projects. Public reaction to • Uprating and refurbishment of over these projects was strong with over 260km of existing lines; 35,000 submissions received for the Grid Link project. We are reviewing the • Planning permission was granted by feedback received and have committed An Bord Pleanála for to reviewing our consultation processes. The Minister for Communications, • the new 25km Mullingar- Energy, and Natural Resources, Kinnegad 110kV Project, which More than 600 people attended a series of nine information days on the proposed Pat Rabbitte, TD at the launch improves security of supply to the of the Indecon Report. Mullingar region, in January North-South 400kV Interconnection Development. The information days • the new Belcamp 220/110kV were held in counties Meath, Cavan and station, which forms part of the Monaghan during April and May 2013. Dublin North Fringe 220kV project to improve security of supply in The Grid West project was highly the area, in February; commended at the 20th Awards for Excellence in Public Relations by the • Cloghran 110kV station, which forms Public Relations Consultants Association part of a demand connection for a of Ireland (PRCA), The Public Relations major customer, was energised in Institute of Ireland (PRII) and The March; Chartered Institute of Public Relations • Planning permission was granted by (CIPR) of Northern Ireland, on 21 June Fingal County Council for the Finglas 2013. The recognition was received from 220kV busbar reconfiguration in the public relations industry for the August; project’s efforts to inform the public • During October, the new Reamore about its launch, the establishment of 110kV station and an uprate of the various communications channels the Bellacorick 110kV busbar were and opening a site office to encourage completed; engagement, the publication of the Constraints Report and Stage 1 Report and the associated series of open days.
30 31 Grid Link Project Manager, John Lowry at an open day on the Grid Link Project.
32 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
In September 2013, the Stage 1 Report Grid25 Economic Benefits Maintenance for the Grid Link Project was published. Study Published The EirGrid Group is responsible for The report confirmed the justification In July 2013, the “Evaluation of the ensuring the maintenance of the for the project and proposed potential Wider Economic Benefits of Grid25 transmission system in Ireland, 1km route corridor options which were Investment Programme” by Indecon including the development and review presented for the public to comment. International Economics Consultants of maintenance policies and standards. The consultation period was extended was launched by the Minister for As in previous years, we identified, until 7 January 2014 arising from the Communications, Energy & Natural prioritised and provided outages for significant reaction to this project. The Resources, Pat Rabbitte, TD. The study maintenance activities designed to team attended over 100 public events was commissioned by the EirGrid Group ensure that the transmission system in the study area, including community to examine the wider economic benefits continues to operate in a safe and briefings and hosted a number of of investment in the Grid25 programme. secure manner. stakeholder visits for local councillors. It found that, due to direct, indirect The EirGrid Group had a very busy and induced impacts of the investment stand at the Ploughing Championships spending, the programme is likely to in September in Ratheniska, Co. Laois. support almost 3,000 jobs over the The event is one of the largest farming 15-year period of the investment plan. events in Europe and crowds in excess The study also presented new survey of 200,000 turned out over the three evidence of the potential of Grid25 days. It provided an opportunity to influence investors’ perceptions to meet with stakeholder groups, of Ireland. 83% of leading companies landowners and the general public in that responded to the survey judged an informal setting and inform people that additional available capacity on about the Group’s task as the national the electricity transmission grid was Transmission System Operator and the important or very important to their Grid25 Development Plan. expansion plans. These organisations accounted for over 24,000 employees in Ireland and over 950,000 worldwide.
Pictured at the National Ploughing Championship 2013: the Minister for Arts, Heritage and the Gaeltacht, Jimmy Deenihan, TD with Ciara Feehely and Deborah Meghen, EirGrid Group.
33 34 Values Our people ‘We recognise our people are our greatest asset’
The Market Systems team are an integral part of the EirGrid Group IS function and work collaboratively to deliver a high quality service. They have responsibility for the ongoing maintenance and support of business critical systems essential to the market. These include the Central Market Systems that provide the scheduling and settlement function for the SEM; Reserve Constrained Unit Commitment and the Auction Management Platform for both the Moyle and the East West Interconnectors. The seamless operation of these systems are essential to participants and ensure the smooth running of the market. The team is comprised of staff in both Dublin and Belfast and they have extensive experience of working as a cross jurisdictional team. Their expertise and integrated approach ensure ongoing high availability of Market Systems and the efficient and cost effective delivery of bi-annual releases.
EirGrid Group Market Systems Team.
35 Simon Grimes, European Affairs, speaking at the EirGrid Group Customer Conference 2013.
36 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Europe
The integration of the European were in progress at different stages TSO Certification Electricity Market is one of Europe’s key of development with eight out of the The TSO Certification process for energy policy priorities. This includes nine now well developed. We have been Ireland and Northern Ireland to both the integration (coupling) of contributing to the development of each implement European Directive 2009/72/ markets through the deployment of the of these Network Codes to ensure that EC concluded. As a result the System ‘EU Target Model’ and through increased the needs of a small island system are Operator in Northern Ireland will be physical interconnection between taken into consideration and indeed are taking on the transmission planning countries/markets. The EirGrid Group leading the drafting on two of them – role making the responsibilities of is very conscious of the need to ensure the Demand Connection Code and the the System Operator similar in both that the specific requirements of the Forward Capacity Allocation Code. jurisdictions. market in Ireland and Northern Ireland are taken into account at EU level. Given Target Market Model the increasing scale and importance of Further Interconnection the European dimension, we established The EU Target Model has to be The EirGrid Group and its French a department under Executive direction implemented in Ireland and Northern counterpart RTE are investigating to manage our interactions and Ireland by 2016. The Regulatory interconnection between Ireland and responsibilities in Europe. Authorities (URegNI and CER) have France. We signed a Memorandum initiated the High Level Design of of Understanding in June 2013 to the market to identify options for Network Codes commission further preliminary compliance with the EU Target Model studies on the feasibility of building The creation of the Internal Electricity that best meet the needs of market a submarine electricity interconnector Market (IEM) in Europe is being participants and end-users. The EirGrid between the two countries. An progressed through the development Group has been engaging in this process Ireland-France interconnector would, of Network Codes, which codify the and analysing the different market if developed, run between the south Target Model. Network Codes are options under discussion. coast of Ireland and the north west being developed in the areas of Grid coast of France, and would comprise a Connection, System Operation and ENTSO-E cable length of approximately 600km. Markets. In 2013, nine Network Codes ENTSO-E is the European Network of We have already conducted studies Transmission System Operators set up which indicated that an interconnector under the Third Energy Package to co- could be beneficial for electricity ordinate among TSOs on a number of customers in both countries. In October significant policy issues. These include 2013, an Ireland-France Interconnector to a large extent the development of was included in the list of Projects the Network Codes and Ten Year Network of Common Interest published by the Development Plan. We are participating European Commission. in all the appropriate areas of ENTSO-E that are of strategic importance to Ireland and Northern Ireland. A significant development and indication Pictured at the CBI/IBEC of the growing influence of the EirGrid Energy Conference 2013 Group in ENTSO-E was the appointment at Belfast’s Titanic Centre: of Ann Scully, Director, European Affairs Danny McCoy, IBEC; Ian Coulter, to the Board of ENTSO-E in 2013, CBI; Minister Foster, MLA; enhancing and reinforcing our central Minister Rabbitte, TD; Fintan role in Europe. Slye, Chief Executive, EirGrid.
37 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Our Customers
The EirGrid Group is responsible for customers and stakeholders including: ensuring a safe, secure and reliable DS3 Industry Forums and Advisory electricity supply to meet the needs of Councils, EirGrid National Stakeholder homes, businesses and industries across Forum, Market Operator Special Topic the island of Ireland. We must also look Sessions, All-Island Generation Forum, to the future, anticipating the demand Market Integration Project Workshop, for electricity in the decades to come Contracts Workshop, Windfarm Testing and plan the development of the grid to and Commissioning Review Workshop meet that demand in a responsible and and Demand Side Unit Forums. sustainable manner. A secure, reliable and affordable power supply is essential Community Engagement in a modern society and economy to Public participation and engaging At the EirGrid Group Conference 2013 drive growth, attract investment and at the Hilton Hotel, Belfast were: create jobs. with local communities is of particular importance in developing large scale Minister Arlene Foster, MLA, Our customers include those who are infrastructure such as the electricity Fintan Slye, Chief Executive, EirGrid plc directly connected to the transmission grid. In 2013, in line with our Public and Martina Maloney, Director, EirGrid plc. grid (large generators and demand users) Consultation Road Map, the EirGrid Group and all consumers and communities held extensive consultation on three across the island, who rely on the major Grid25 projects. The consultation transmission system and benefit from process included 26 open days, hundreds having a secure electricity supply. Our of briefings to various stakeholders relationships with each of these groups and organisations, the opening of local are very important to us. information offices for communities and providing information through Customer Events 2013 local media. The EirGrid Group Customer Conference There has been significant feedback entitled “Delivering the Power System from local communities, stakeholders and Market of Tomorrow” was held and individual members of the public in Belfast on 31 October 2013. The which has been extremely valuable to event was the first EirGrid Group improving our understanding of the Conference hosted in Northern Ireland. issues. We have announced a series of The conference was attended by initiatives to address the public concerns Pictured at the EirGrid Group Customer approximately 190 delegates. Topics about some of the Grid25 projects – Conference were the panel members: included: facilitating Ireland’s changing these included conducting a detailed Pierre Bornard, Chairman, ENTSO-E, fuel mix, regional integration and a analysis of underground options, the Fintan Slye, Chief Executive, Simon round table discussion on the social introduction of specific Community Grimes, Derek Lawler and acceptance of transmission projects. Gain measures, and a review of our Alex Baird of the EirGrid Group. It was opened by the Minister for consultation process to enhance future Enterprise, Trade and Investment in public engagement. Northern Ireland, Arlene Foster, MLA and The EirGrid Group is committed to Pierre Bornard (Vice-CEO French TSO RTE, developing projects in a responsible Chairman ENTSO-E) provided the keynote manner and engaging with the address for the event. public, communities and all affected Throughout the year, we have facilitated stakeholders openly and constructively a number of events and workshops for throughout the process.
38 Moneypoint Power Station, Kilrush, Co. Clare.
39 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Customer Initiatives Delivered EWIC and New Customers In response to feedback from our The East West Interconnector means directly connected customers and our customer base now includes those stakeholders we delivered a number of focused on energy trading between the initiatives during the year: All-Island and Great Britain electricity markets (SEM and BETTA). It has opened • A new SONI website, with improved the SEM market to new entrants and functionality and innovative use of enhanced competition. There are now web technologies to display live data eight customers registered to trade direct from the Control Centre Energy on EWIC and there continues to be Management System (EMS), was strong interest from further potential launched in early 2013; customers. • More information is provided on Grid Development and progress In SEM during the past year there were on Associated Transmission 14 new participants and a total of 43 Reinforcement (ATR) projects which new units registered, including EWIC are required to deliver Firm Access users. Quantities (FAQ) for customer projects;
• A bi-monthly Market Operations Conference call is held which highlights recent and upcoming events in the market as well as providing an open forum to discuss issues and raise questions; and
• There is now a dedicated section on the EirGrid website on European developments.
40 Connection Policy & Contracts Team: Marie Hayden and Shane Maher.
41 42 Values Socially Responsible ‘We behave in a socially responsible manner’
We are committed to behaving in a socially responsible manner. A measure of this is that we are one of eleven companies in Ireland to hold the Business in the Community ‘Business Working Responsibly’ Mark. This is Ireland’s recognised certification for responsible and sustainable business practices. In obtaining the Mark our activities were reviewed across the full scope of our business for their sustainable and responsible practice. EirGrid was awarded the mark after an audit demonstrating our high standards in the areas of environment, workplace, marketplace, community, communication and governance.
Kieran McGowan, Chairperson of BITC and Fintan Slye, Chief Executive, EirGrid Group at the presentation of the BWR Mark award.
43 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Corporate Social Responsibility
Doing business responsibly and in the developing world. During the past sustainably has always been central to year, funds totalling more than €38,000 the EirGrid Group’s way of operating. have been raised in the Group for these During the year, we developed a three organisations. In 2013 we were new strategy in which Corporate pleased to win the Chambers Ireland Social Responsibility (CSR) features Award for Excellence in International prominently. One of our new values is to CSR in a joint initiative with ESB for the behave in a socially responsible manner. roll out of fuel efficient stoves in Eritrea. CSR is fully integrated into the Group’s In addition to these charity fundraising business planning and performance activities by our staff, EirGrid Group also management systems. supported a number of events organised EirGrid is pleased to hold Business by communities, including the Sligo Live in the Community Ireland’s (BITC) Festival, the Hay Festival in Kells, Co. “Business Working Responsibly” Mark, Meath and the Water Music Festival in Pictured at the Chambers Ireland CSR the benchmark CSR standard in Ireland. Carrick-on-Shannon, Co. Leitrim. Awards were Minister Phil Hogan, TD, We will be seeking re-certification to the James Foley ESB and Electric Aid, Mark in 2014. Caring for the Environment Patricia Wade EirGrid and Electric Aid and Chief Executive of The nature of our activities means Chambers Ireland Ian Talbot. Engaging with and there is the potential to impact on Supporting Communities the environment. We are committed The EirGrid Group’s community to taking the environment into engagement includes consultation on consideration, according to best grid development (as discussed earlier), practice, in planning the development education outreach and staff engagement of the transmission system. in fund raising and charity giving. By ensuring secure and reliable Our School Science programme - From electricity supplies across the island of Power Station to Playstation® - engages Ireland, the Group enhances quality of with schools, students and teachers to life and enables economic development. provide assistance in preparing junior The Group’s work contributes very cycle students for science experiments in positively to the environment through the junior cycle curriculum. In 2012/13, facilitating the integration of renewable the programme was delivered to almost energy sources onto the transmission 3,000 students and 60 teachers in Ireland system, and in helping meet the target Louise McHugh, and Northern Ireland. We plan to run of the Governments of Ireland and Ray Niland, Ailbhe Enright, the programme in another six venues in Northern Ireland of 40% of electricity Michael Moore, Kate Hanley, 2013/14, reaching another approximately being sourced from renewable sources Grid Development. 3,000 students. by 2020. Attainment of the 40% renewable target will contribute to Our staff engage in fundraising and reducing the carbon footprint of Ireland charity giving. Each year staff choose and Northern Ireland. a preferred charity to support in Ireland and Northern Ireland. In 2013 these In 2013 we launched a Smart Grid were the Laura Lynn Children’s Hospice iPhone app which provides information and the Alzheimer’s Society of Northern on an all-island basis enabling users Ireland. We also support ElectricAid to see key energy related real-time which is an electricity industry charity data. This facilitates smart energy use providing aid to organisations working decisions.
44 45 John Wilson demonstrates to a student during the School Science Programme.
46 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Energy Usage Workplace In 2013 EirGrid Group consumed 3,983 We have a highly skilled and educated MWh of energy at its offices in Ballsbridge workforce across a range of disciplines. and the Business Continuity Centre: One of our core values is that “we recognise our people are our greatest • 3,122 MWh of electricity; asset”. We give our people every • 862 MWh of fossil fuels; and opportunity to perform and to develop • 0 MWh from onsite renewable fuels. to the maximum of their potential. People work together on challenging 717 MWh of the electricity used was projects and we provide technical generated by renewable sources (average and personal development training renewable share of 18% in 2013). Staff members who took part in The opportunities. We communicate and Docklands Run in aid of LauraLynn engage with our people on the things Ireland’s Children’s Hospice. Actions Undertaken in 2013 that matter to them. In 2013 EirGrid plc undertook a range of initiatives to improve its energy Health, Safety and Environment performance, using submetering data The Group is committed to achieving from its energy management system and maintaining the highest standards to identify opportunities to reduce of health, safety and welfare and to consumption including: the protection of the Environment. • Fine-tuning of building systems We operate a Health, Safety and including measures to ensure Environmental (HS&E) Management the main heating and cooling System which is certified to the systems within our control are only International Occupational Health and operational when required; and Safety Standard: OHSAS18001:2007 and the Environmental Management Standard • Installation of a system to manage computer energy usage outside ISO14001:2004. Safety certification office hours. was extended to the East West Interconnector in 2013. There were no Altogether, these and other energy lost time accidents in the EirGrid Group Presentation to the Alzheimer’s saving measures have reduced EirGrid during the year. Society of Northern Ireland. plc’s energy intensity per employee by 3%. This year we were delighted to receive a Category 1 Major Award under the Utilities category at the Annual Actions Planned for 2014 Occupational Safety Awards hosted by In 2014 EirGrid plc plans to further the National Irish Safety Organisation improve its energy performance by 2% (NISO) and the Northern Ireland by undertaking the following initiatives: Safety Group (NISG). This reflects the consistent commitment across the Group • Further optimisation of the computer and IT datacentre environment; and to the highest standards of health, safety and welfare. • Further improve the building environment including lighting systems.
47 48 Values Delivery ‘We deliver on our promises’ The energisation by the EirGrid Group of a new 220kV station at Great Island in County Wexford in October 2013 was a key milestone for SSE, one of our largest generation customers. The on-time completion of this project, which represents a €20m investment in the local transmission system, was made possible by close co-ordination and co-operation between the customer, the EirGrid Group’s project team and ESB Networks. SSE is constructing a 460 MW combined cycle gas turbine (CCGT) at Great Island and the delivery of this project has enabled the connection of the power plant. Expected to be commissioned in 2014 this modern and efficient clean gas-fired power plant will replace the existing 240 MW fuel oil unit at the site, helping to decarbonise electricity generation in Ireland.
Great Island 220kV station, Co. Wexford.
49 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
The Board
Left to Right Liam O’Halloran Dr. Joan Smyth Regina Moran Richard Sterling Fintan Slye CHIEF EXECUTIVE 50 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Left to Right John O’Connor CHAIRPERSON Dr. Gary Healy Niamh Cahill COMPANY SECRETARY Doireann Barry Bride Rosney Martina Moloney 51
EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
The Board
John O’Connor CHAIRPERSON Doireann Barry John O’Connor was appointed Doireann Barry was appointed to the Chairperson of the Board of EirGrid with Board of EirGrid in December 2011 effect from 12 November 2013. From for a period of five years, following 2000 to 2011, he was the Chairperson her election as the EirGrid staff of An Bord Pleanála, the independent representative. She has been involved national tribunal for the determination in the electricity industry since 1999 of planning appeals and strategic and has worked in many areas in infrastructure projects. Prior to that, EirGrid, particularly in the Operations he served for 35 years as a civil servant department. Her current role is the in the Department of the Environment Smart Grid Programme Manager, with where he occupied senior positions as responsibility for the co-ordination Finance Officer, Principal Housing Policy of all Smart Grid-related activities and Finance and Assistant Secretary across the EirGrid Group. She has The EirGrid Board pictured at in charge of the Planning and Water represented the company both nationally Westminster. Services Division. He has also served and internationally, as a speaker at as director of three commercial State conferences and as an active member Bodies: the Housing Finance Agency, of working groups in ENTSO-E. She is Temple Bar Properties and the Dublin an Electrical Engineering graduate Docklands Development Authority. He of University College Cork and is is also the Chairperson of the Pyrite a member of Engineers Ireland. Resolution Board. He holds a Diploma in Public Administration from UCD. Dr. Gary Healy Dr. Gary Healy was appointed to the Fintan Slye CHIEF EXECUTIVE Board in September 2011 for a five year Fintan Slye was appointed Chief term. Dr. Healy is the head of regulation Executive on 1 October 2012 and was and public policy at Telefonica O2 and officially appointed to the Board on vice-chair of the Telecommunications 17 July 2013. Prior to that Fintan Internet Federation in IBEC. Dr. Healy The Oval, Ballsbridge, Dublin. was Director of Operations with was Director of Market Development responsibility for the operation of the in the Commission for Communication power system in Ireland and Northern Regulation (ComReg) and a regulatory Ireland, with Control Centres and teams consultant with Jacobs & Associates in Belfast and Dublin, ensuring security and PriceWaterhouseCoopers. Dr. and continuity of electricity supply Healy has advised clients in Ireland in real-time across the island. Fintan on regulatory and public policy and also had responsibility for managing on projects supporting governments EirGrid and SONI’s programme of work in Eastern Europe and the Middle East. to facilitate the integration of world- Prior to joining ComReg, Dr Healy was leading levels of renewables on the Country Manager with Thomson Reuters power system. Prior to working for and CFO for a Citibank subsidiary in the EirGrid, Fintan worked for McKinsey UK. Dr Healy has a PhD in Government and Co in their Dublin office, supporting and Law from DCU, an MBA from DCU, companies across Ireland, UK and an MA Modern History from Middlesex Europe. Fintan completed a Masters University and is a qualified accountant. in Business Administration from UCD in 2001 and a Masters in Engineering Science in 1993.
52 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Martina Moloney Liam O’Halloran Martina Moloney was appointed to Liam O’Halloran was appointed to the the Board in September 2004 for a Board in September 2011 for a five period of five years and reappointed year term. Liam has extensive senior in September 2009 for a further five management experience in multinational year term. A career official in the local electronic and telecommunications government sector, she currently holds companies. He previously held the the position of County Manager with position of Senior Vice President of DEX Galway County Council, which serves Europe, a US based company providing more than 175,000 people, has an annual Repair and Logistics Services to major spend in excess of €150 million and has electronics multinationals in the IT, a staff of 800. Prior to joining Galway Healthcare and Energy Sectors. Liam County Council, she worked with six was also Vice President of European The EirGrid Board pictured at other local authorities; these included Operations for Jabil Global Services, Westminster. Louth County Council where she held the a global electronics services company. position of County Manager, and Galway The owner of Alcomis, a company City Council where she was Director of development consultancy, Liam was Services with responsibility for corporate also Director of Customer Operations services, community and enterprise. She and Regulation at Magnet Networks holds a BA in Public Administration and and later served as Executive Chairman an MA in Public Management. She is a of ALTO, the Association of Alternative member of the Institute of Accounting Telecommunications Operators. Technicians. Bride Rosney Regina Moran Bride Rosney was appointed to the Board Regina Moran was appointed to the in September 2011 for a five year term. Board in September 2011 for a five year Bride is currently the Secretary to term. Regina is currently CEO of Fujitsu the Board of Trustees of the Mary Castlereagh House, Belfast. in Ireland, where she leads a 350 Robinson Foundation - Climate Justice strong team focused on delivering of which she was the founding Chief ICT services that add business Executive Officer. She was Director of value to the Irish marketplace. Communications with RTÉ from 2001 to Regina is a member of the Dublin 2009 and worked in the private sector City University governing authority, as a communications consultant in the Vice President of Engineers Ireland spheres of new technologies and the (FIEI) and a member of the board arts from 1998 to 2001. Between 1990 of IBEC Ltd. She has recently been and 1997, she worked as Special Advisor appointed to the National Paediatric to Mary Robinson during her time as Hospital Development Board. President of Ireland and United Nations Regina holds a first class honours MBA High Commissioner for Human Rights. from Dublin City University and has A graduate in Science from University been awarded the ‘Sir Charles Harvey College Dublin and Computer Practice Award’ for outstanding contribution from Trinity College Dublin, with over in her post-graduate studies. twenty years experience in education and educational research at both second and third levels, Bride previously worked as a teacher, educational researcher and school principal.
53 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
East West Interconnector Cable Drum.
54 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Dr. Joan Smyth Richard Sterling Dr. Joan Smyth was appointed to the Richard Sterling was appointed to EirGrid Board in June 2009 for a period the EirGrid Board in June 2009 for of five years. She is Chairperson of the a five year term. He is former Managing Progressive Building Society for the Director of Coolkeeragh Power Limited past five years. She has also served as based in Derry and is a past President Director of Trinity Housing Association. of Londonderry Chamber of Commerce. She is also President of the Red Cross, He was appointed a Board Member of Northern Ireland. In 2009 she completed Ilex, the Urban Regeneration Company more than five years in office as Chair for the Derry City Council area in 2003 of the Chief Executives’ Forum. She has and during his six year term he served served two terms as Chair of the Northern as Acting Chairman and Deputy Chairman. Ireland Transport Holding Company A fellow of the Chartered Institute of from 1 July 1999 to 30 June 2005 and Management Accountants, he has a was Chair of the Equal Opportunities distinguished employment history at Commission for NI from 1992 (Chair and a senior level in several industries within Chief Executive until 1 October 1998) Northern Ireland. Richard was awarded remaining in the post until the new an OBE in 2003 for services to the Basic Equality Commission was established in Skills Committee and to business in October 1999. She was elected to the Northern Ireland. Board of the British Council in September 1999 and has chaired its Northern Ireland Committee. Dr. Smyth has a BSc (Econ) from Queen’s University, Belfast and is a Companion of the Institute of Personnel and Development. She is an Independent Assessor for Public Appointments. Dr. Smyth is also a past Federation President of Soroptimist International of Great Britain and Ireland. She was awarded a CBE in the 1998 New Year’s Honours List.
55 Organisational Structure
Board of EirGrid Chairperson John O’Connor
Chief Executive Fintan Slye
Group Legal Niamh Cahill
SEMO & SONI GM Finance IS Operations Future Grids Grid Development European Affairs HR Robin McCormick Aidan Skelly Rodney Doyle Andrew Cooke Michael Walsh John Fitzgerald Ann Scully Siobhan Toale
56 Board of EirGrid Chairperson John O’Connor
Chief Executive Fintan Slye
Group Legal Niamh Cahill
SEMO & SONI GM Finance IS Operations Future Grids Grid Development European Affairs HR Robin McCormick Aidan Skelly Rodney Doyle Andrew Cooke Michael Walsh John Fitzgerald Ann Scully Siobhan Toale
57 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Executive Team
The Executive team is headed up by our of New Zealand concentrating on Chief Executive, Fintan Slye. electricity and gas regulation/market design issues and before that worked in A full biography for Fintan is included consultancy. Rodney is a member of a on page 52. number of key European TSO and market co-operation groups. Rodney has a BA (Economics), MA (Economics) and an MBA from UCD. Andrew Cooke In his role as Operations Director, Andrew Cooke is responsible for the operation of the power system in Ireland and Northern Ireland, including real-time operation, 24/7, from Control Niamh Cahill Centres in Belfast and Dublin. A graduate of Queen’s University Belfast, Niamh Cahill is the Company Secretary he holds a BSC in Electrical Engineering. and Company Lawyer for EirGrid plc. He has more than 30 years’ experience Niamh is a graduate of NUI Galway BA of working in the areas of transmission John Fitzgerald (Hons) and LL B (Hons) and holds a BL system operations and planning, market John Fitzgerald was appointed as from King’s Inns, Dublin. She was called design and regulation. Director of Grid Development in to the Bar in Ireland in 1985 and the February 2013. He had previously UK Bar (Middle Temple Inn) in 1988. held the position of Project Director She has extensive experience both in of the East West Interconnector for private practice (Four Courts, Ireland) EirGrid since 2007. Prior to joining and as an in-house legal Counsel worked EirGrid, John was involved in the for a wide range of major international area of business development for ESB private and public companies in the International where he held a number Republic of Ireland and the UK. Prior of management positions including to joining EirGrid, Niamh worked as Business Development Manager, Manager a senior commercial lawyer within ESB for Trading and Supply (Northern Group, where she had responsibility Rodney Doyle Ireland) and Commercial Manager for for managing and mitigating a wide Coolkeeragh ESB. John has been involved range of commercial legal risks in Rodney Doyle became Director of in the development of major energy the Irish electricity market and ESB’s Information Services in February 2013. infrastructure projects and corporate international investments. Prior to this Rodney held a number of management positions in EirGrid initiatives such as the Coolkeeragh most recently as the European Market 400 MW CCGT and associated gas Integration Manager and before that as pipeline and industry reform in Northern Manager of the East West Interconnector Ireland and in the Marchwood 880 MW Business Readiness Project and Ancillary CCGT in Britain. Before that John held Services Manager. Rodney has across a number of operational positions in his roles led projects to deliver major ESB. John has a Bachelor of Electronic systems and policies which are in use Engineering degree and holds an MBA today across the electricity market and from University College Dublin. the TSOs. Before his time with EirGrid and ESB National Grid Rodney worked as the Chief Adviser in the Networks Division of the Competition Authority
58 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
to achieve the establishment of the All-Island Single Electricity Market (SEM) by the agreed ‘go live’ deadline of 1 November 2007. Prior to taking on this project, she held a number of managerial and project roles in ESB National Grid and ESB, including establishing the wholesale electricity market in Ireland Robin McCormick in 2000 and CEO of ESBI Alberta Ltd, Siobhan Toale Robin McCormick has extensive the Transmission Administrator in Siobhan Toale is Director, Human experience in the power industry in Alberta, Canada. A graduate of Trinity Resources. Siobhan joined EirGrid in a regulated utility environment. He College, she holds a degree in Electrical 2013 and has extensive HR, Leadership was General Manager of SONI when Engineering. Development and Change Management it partnered with five organisations - experience from the Telecommunications EirGrid, DETI, DCENR, NIAUR and CER - and Banking Industries. She has to establish the Single Electricity Market previously held senior HR positions in in 2007. Subsequently EirGrid acquired Eircom, Telefonica 02 Ireland and Bank of SONI in 2009 and in his role as an Ireland Group. Siobhan has a BSc (Comp) Executive Director carries a portfolio from Trinity College Dublin and an MSc in of responsibilities including Group Organisational Behaviour from Birkbeck Customer Relations and SEMO, the Single College, University of London. Electricity Market Operator. He has participated in the board to establish Aidan Skelly the transmission system operators’ regional association with ENTSO-E. Aidan Skelly joined EirGrid as Chief Robin is a fellow of the Institution of Financial Officer in June 2005. He Engineering and Technology, a Member was previously Finance Director with of the IET Engineering Policy Group- Waterford Stanley Limited. He worked Northern Ireland and IoD. He holds with Waterford Crystal from 1987 to an MBA from the University of Ulster, 2002, during which time he held a Jordanstown and an MSc from Napier number of finance and commercial University, Edinburgh. positions in Ireland and in the UK. Michael Walsh He trained as a Chartered Accountant Michael Walsh is Director of Future Grids with PriceWaterhouseCoopers and is a and joined EirGrid in September 2011. Commerce graduate of University College Prior to joining EirGrid, Michael was the Dublin. He also holds an MBS from Chief Executive of the Irish Wind Energy Dublin City University. Association. Previous to this, Michael was Manager of Market Development at EirGrid where he played a key role in the successful development of the Single Electricity Market. His other previous Ann Scully roles include Manager of Ancillary Services Ann Scully is EirGrid’s Director at EirGrid and a lecturer in Electronic responsible for European Affairs. Prior Engineering at UCD. Michael was a board to this role, she was EirGrid’s Director of member of the European Wind Energy Information Services and before that she Association between 2008 and 2011. was Director of the All-Island Project. Michael has a BE, a PhD and an MBA from Together with her counterpart in SONI, UCD. He is a Fellow of Engineers Ireland. she was responsible for the programme
59 60 EIRGRID EIRGRIDPLC ANNUAL PLC ANNUALREPORT &REPORT ACCOUNTS & ACCOUNTS 2013 2013
Financial Statements
Directors’ Report 62 Independent Auditor’s Report to the Members of EirGrid plc 72 Consolidated Income Statement 74 Consolidated Statement of Comprehensive Income 75 Company Statement of Comprehensive Income 75 Consolidated Balance Sheet 76 Company Balance Sheet 77 Consolidated Statement of Changes in Equity 78 Company Statement of Changes in Equity 79 Consolidated Cash Flow Statement 80 Company Cash Flow Statement 81 Notes to the Financial Statements 82
61 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Directors’ Report
The Directors present their annual report and the audited Financial Statements of the Group for the year ended 30 September 2013.
Principal Activities The Group’s principal activities are to deliver quality connection, transmission and market services to generators, suppliers and customers utilising the high voltage electricity system in Ireland and Northern Ireland. EirGrid plc also has the responsibility to put in place the grid infrastructure required to support the development of Ireland’s economy. The Group is also responsible for the operation of the wholesale electricity market for the island of Ireland. The Group owns and operates the East West Interconnector (EWIC) linking the electricity grids in Ireland and Great Britain. EWIC went into full operation on 1 May 2013. The Group collects tariffs to support these activities. These tariffs allow for incentives and a regulated return for capital invested in the business, generating value for the Group over the longer term.
Results and Review of the Business Details of the financial results of the Group are set out in the Consolidated Income Statement on page 74 and the related Notes 1 to 30. The current period being reported on is the year ended 30 September 2013. The comparative figures are for the year ended 30 September 2012. As a result of the delay in EWIC becoming fully operational the impact of EWIC on the Income Statement has been split out to aid comparability. Further detail on EWIC is included in Note 7 including the impact of the delay to operations on current year reported profit. Commentaries on performance during the year ended 30 September 2013, including information on recent events and future developments, are contained in the Chairperson’s Report and the Chief Executive’s Report.
Corporate Governance The Group is committed to maintaining the highest standards of corporate governance. During the year the Group was compliant with the revised and updated Code of Practice for the Governance of State Bodies (‘the Code’) issued by the Department of Finance on 15 June 2009. The Code sets out the principles of corporate governance which the Boards of State Bodies are required to observe. The Group also complies with the corporate governance and other obligations imposed by the Ethics in Public Office Act, 1995 and the Standards in Public Office Act, 2001. The Group also has regard to the principles of the UK Corporate Governance Code revised in September 2012 and the Irish Corporate Governance Annex issued in December 2010.
Principles of Good Governance
Board Members The Board consists of a non-executive Chairperson, the Chief Executive, in his role as an executive Director, an employee representative Director and seven non-executive Directors. All Directors are appointed by the Minister for Communications, Energy and Natural Resources and their terms of office are set out in writing. Under this protocol John O’Connor was appointed to the Board as Chairperson on 12 November 2013 for a term of 5 years.
The Board While day to day responsibility for the leadership and control of the Group is delegated to the Chief Executive and his Management Team, within defined authority limits, the Board is ultimately responsible for the performance of the Group.
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The Directors are aware of, and have individually resolved to comply with, the Group’s Code of Business Conduct for Directors. Procedures are in place for the annual review of the performance of the Board and the Chairperson. The Board has a formal schedule of matters specifically reserved to it for decision at the Board Meetings normally held monthly. Board papers, which include monthly financial statements, are sent to Board members in the week prior to Board Meetings. The Board Members, in the furtherance of their duties, may avail of independent professional advice. All Board Members have access to the advice and services of the Company Secretary. Insurance cover is in place to protect Board Members and Officers against liability arising from legal actions taken against them in the course of their duties. The Board conducts an annual review of the effectiveness of the system of internal controls including financial, compliance and risk management. As noted in the Internal Controls section of the Directors’ Report, the Board has not identified, nor been advised of, any failings or weaknesses which it has determined to be significant.
Board Committees in 2013 The Board has an effective committee structure to assist in the discharge of its responsibilities, consisting of a number of sub committees. The four standing sub committees are: the Audit Committee, the Remuneration Committee, the Grid Infrastructure Committee and the Pensions Committee. The Audit Committee’s function is to assist the Board in fulfilling its oversight responsibilities relating to the financial reporting process, the system of internal control, the audit process, monitoring the independence of the auditors, compliance with laws and regulations including the Code of Practice for the Governance of State Bodies. The Board is satisfied that at all times during the year at least one member of the Committee had recent and relevant financial experience. EirGrid has regard to Government policy in relation to the total remuneration of the Chief Executive. The Remuneration Committee, with the consent of the Department of Communications, Energy and Natural Resources and the Department of Public Expenditure and Reform, determines the level of the Chief Executive’s remuneration. The Committee also approves the structure of remuneration for Senior Management. The Grid Infrastructure Committee’s function is to oversee the implementation of grid development strategy and review infrastructure projects which are expected to come forward for Stage 1 approval in the near future. The Pensions Committee’s function is to monitor the sustainability of the various EirGrid Group pension obligations entered into and the ongoing viability of each of the schemes.
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Attendance at Meetings
Board Meetings There were 15 Board Meetings held during the year ended 30 September 2013. The Board Members’ attendances at these meetings were as set out below: Eligible to Attend Attended
John O’Connor (Chairperson) (appointed 12 November 2013) Bernie Gray (Chairperson) (retired 7 September 2013) 14 14 Doireann Barry 15 15 Gary Healy 15 12 Martina Moloney 15 14 Regina Moran 15 11 Liam O’Halloran 15 15 Bride Rosney 15 13 Fintan Slye (appointed 17 July 2013) 2 2 Joan Smyth 15 15 Richard Sterling 15 15
Members of the Board at the date of signing of the financial statements were John O’Connor (Chairperson), Doireann Barry, Gary Healy, Martina Moloney, Regina Moran, Liam O’Halloran, Bride Rosney, Fintan Slye, Joan Smyth and Richard Sterling.
Audit Committee There were 6 Audit Committee Meetings held during the year ended 30 September 2013. The Committee Members’ attendances at these Meetings were as set out below: Eligible to Attend Attended Richard Sterling (Chairperson) 6 6 Doireann Barry 6 6 Gary Healy 6 6 Joan Smyth 6 6
Members of the Audit Committee at the date of signing of the financial statements were Richard Sterling (Chairperson), Doireann Barry, Gary Healy, and Joan Smyth.
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Remuneration Committee There were 9 Remuneration Committee Meetings held during the year ended 30 September 2013. The Committee Members’ attendances at these Meetings were as set out below: Eligible to Attend Attended
Bernie Gray (Chairperson) (retired 7 September 2013) 9 9 Joan Smyth (Chairperson) (appointed Chairperson 18 September 2013) 9 9 Martina Moloney 9 9 Liam O’Halloran 9 9
Members of the Remuneration Committee at the date of signing of the financial statements were Joan Smyth (Chairperson), Martina Moloney and Liam O’Halloran.
Grid Infrastructure Committee There were 9 Grid Infrastructure Committee Meetings held during the year ended 30 September 2013. The Committee Members’ attendances at these Meetings were as set out below: Eligible to Attend Attended Martina Moloney (Chairperson) 9 9 Liam O’Halloran 9 9 Bride Rosney 9 9 Richard Sterling 9 9
Members of the Grid Infrastructure Committee at the date of signing of the financial statements were Martina Moloney (Chairperson), Liam O’Halloran, Bride Rosney and Richard Sterling.
Pensions Committee There were 3 Pensions Committee Meetings held during the year ended 30 September 2013. The Committee Members’ attendances at these Meetings were as set out below: Eligible to Attend Attended Bernie Gray (Chairperson) (retired 31 March 2013 as Chairperson, retired from Committee 7 September 2013) 2 2 Regina Moran (Chairperson) (appointed Chairperson 1 April 2013) 3 3 Doireann Barry 3 3 Gary Healy (appointed 18 September 2013) 0 0
Members of the Pensions Committee at the date of signing of the financial statements were Regina Moran (Chairperson), Doireann Barry and Gary Healy.
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Principal Risks and Uncertainties
Risk Management The Group has in place an appropriate risk management process that identifies the critical risks to which it is exposed and ensures that appropriate risk mitigation measures are taken. The Group’s internal audit function continually reviews the internal controls and systems throughout the business, makes recommendations for improvement and reports to the Audit Committee.
Financial Risk Management The main financial risks faced by the Group relate to liquidity risk, market risk (specifically foreign exchange rate risk, interest rate risk and cash flow risk) and credit risk. Policies to protect the Group from these risks are regularly reviewed, revised and approved by the Board as appropriate. The Group’s principal financial risk is that there is inadequate liquidity in the event of a significant regulatory under- recovery. The Board seeks to ensure that adequate banking lines are in place to enable it to fund such a requirement, pending recovery in a subsequent regulatory pricing period. The Group discharges its Market Operator obligations through a contractual joint venture. Under the terms of the Trading and Settlement Code for the Single Electricity Market (SEM) each participant is required to provide credit cover at a level notified to it by the Market Operator. Such credit cover can be provided by means of an irrevocable standby letter of credit or a cash deposit held in a SEM collateral reserve account (security accounts held in the name of market participants). Any bad debt arising in the SEM, to the extent that it exceeds the available credit cover, is shared by generators and is not borne by the Market Operator. Appropriate arrangements are also in place to effectively manage the Group’s credit risk arising from its Transmission System Operator activities. As a regulated business, operating in Ireland and Northern Ireland, the Group’s Transmission System Operator activities do not involve any significant pricing or foreign exchange risks. The Group does derive approximately 25% of its revenues from the UK and hence has an exposure to Euro/Sterling currency fluctuations. This risk is partially mitigated by the majority of both revenue and expenditure from UK operations being denominated in Sterling. The Group has sought to further reduce this exposure by funding UK operations using Sterling borrowings. The Group funds some of its operations using borrowings. The Group seeks to minimise the effects of the interest rate risks arising from its operational and financial activity by using derivative financial instruments to hedge risk exposures. The Group has entered into interest rate derivatives to fix interest rates on its debt. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group is exposed to credit risk from the counterparties with whom it holds its bank accounts. The Group mitigates its exposure by spreading funds across a number of financial institutions which have a credit rating, from an independent rating agency, consistent with the Treasury Policy approved by the Board. The Group is also exposed to counterparty risk on undrawn facilities and interest rate swap instruments. Consistent with its Treasury Policy the Group deals only with counterparties with high credit ratings to mitigate this risk. The Group’s policy and practice is to settle invoices promptly according to terms and conditions agreed with suppliers.
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Operational Risk Management The Group is responsible for the secure operation of the transmission systems in Ireland and Northern Ireland, for the asset management and operation of the East West Interconnector, and for the operation of the all-island Single Electricity Market. A complete programme is in place to discharge this responsibility. This includes:
• Back-up sites for the control centres in Dublin and Belfast, which are regularly tested;
• Comprehensive operational procedures and maintenance arrangements for the East West Interconnector;
• Comprehensive power system operational procedures which are regularly reviewed and are in line with best international practice;
• Grid maintenance standards and policies, supported by a detailed Infrastructure Agreement with ESB as the Transmission Asset Owner in Ireland;
• Support of the pre-construction phase of the Grid25 Program by a fully functioning Program Management Office, which has effective and appropriate policies, processes and controls;
• Appropriate arrangements with Northern Ireland Electricity (NIE), the Transmission Asset Owner in Northern Ireland; and
• Continuous management focus on all aspects of health and safety. A Safety Management System (certified to OHSAS 18001) has been approved and implemented.
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Internal Controls An internal control system encompasses the policies, processes, tasks, behaviours and other aspects of the Group that, taken together:
• Facilitate effective and efficient operations by enabling the Group to respond to risks;
• Ensure the quality of internal and external reporting; and
• Ensure compliance with applicable laws, regulations and internal policies.
The Board has overall responsibility for the Group’s systems of internal control and for monitoring their effectiveness and in this regard the Board’s objective is to maintain a sound system of internal control to safeguard shareholders’ interests and the Group’s assets. These systems are designed to provide reasonable, but not absolute, assurance against material misstatement or loss. In order to discharge its responsibility in a manner which ensures compliance with legislation and regulations, the Board established an organisational structure with clear reporting procedures, lines of responsibility, authorisation limits, segregation of duties and delegated authority. The key elements of the Group’s internal control processes are:
• Defined policies and procedures in relation to expenditure and treasury matters;
• Timely financial reporting on a monthly basis;
• Preparation of, and monitoring performance against, annual budgets which are reviewed and approved by the Board;
• An internal audit function which reviews critical systems and controls;
• An Audit Committee that considers audit reports and approves Financial Statements before submission to the Board and Shareholders;
• Regular performance of a risk management process; and
• Procedures to ensure compliance with laws and regulations.
The Group has put in place a framework for monitoring and reviewing the effectiveness of internal controls, including its risk management process. The Directors confirm that they have reviewed the effectiveness of the system of internal control operated during the period covered by these Financial Statements. During the course of this review, the Board has not identified, nor been advised of, any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate. The Group has an Internal Audit function which delivers an annual programme of audits to ensure that there are effective controls operating across key financial processes and those areas of higher risk exposure. The Group’s Head of Internal Audit & Compliance reports to the Audit Committee quarterly and, on an annual basis, presents an assurance statement on the effectiveness of internal control, risk management and corporate governance. Under the internal audit arrangements in place, Internal Audit has access to external specialist resources to support its activities.
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Directors’ Remuneration The Financial Statements include €108,000 (2012: €126,600) for Chairperson’s and Directors’ fees, in accordance with the Department of Finance approved levels of remuneration for the Chairperson and Board Members of State Bodies and the revised arrangements for payment of board fees to public sector employees under the Department of Public Expenditure and Reform’s “One Person One Salary” Principle. On 14 May 2009 the Department of Communications, Energy and Natural Resources issued an instruction that Chairperson and Directors’ fees be reduced, effective 1 May 2009. Prior to this instruction being issued the Chairperson and Directors had already decided to take a voluntary 10% reduction in their fees. Under the approved remuneration levels, the Chairperson’s fees were equivalent to €21,600 per annum during the year (2012: €21,600 per annum). Directors’ fees were equivalent to €12,600 each per annum during the year (2012: €12,600 each per annum). The only executive Board Member during the year was the Chief Executive, Fintan Slye, who was appointed a Director on 17th July 2013. Fintan Slye was appointed Chief Executive on 1st October 2012. The Chief Executive’s remuneration is set by the Department of Public Expenditure and Reform and the Department of Communications, Energy and Natural Resources. The remuneration of the Chief Executive consists of basic salary, taxable benefits and certain retirement benefits. The retirement benefits of the Chief Executive are calculated on basic pay only and aim to provide in retirement a pension of one-eightieth and a gratuity of three-eightieths of salary for each year of service as Chief Executive. The increases in accrued pension and accrued gratuity excluding inflation during the year to 30 September 2013 were €2,125 (2012: €2,840) and €6,375 (2012: €8,520) respectively. The total accrued pension at the end of the year was €11,920 (2012: €20,610) and the total accrued gratuity was €40,910 (2012: €61,830). The transfer value of the relevant increase, net of the Chief Executive’s own personal pension contributions was €25,884 (2012: €47,003).
Chief Executive’s Remuneration: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000 Basic salary 170 228 Less: adjustments - (107) Annual Bonus - - Taxable benefits 15 34 Pension contributions paid 26 68 Director’s fees - 13
Total 211 236
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Dividends An interim dividend of €4,000,000 was paid in November 2013. In evaluating the annual dividend that the Group may propose the Board consider the following key factors:
• Available cash: The Group receives tariff revenues, which are reflected through the Income Statement which fund operational expenses of the Group and capital projects which are capitalised and depreciated over future periods. This creates a mismatch between available cash and reported profits;
• Expected adjustment for under/over recovery: Any under or over recovery of costs through tariff revenue is not recognised in the Financial Statements. The dividend policy reflects the expected impacts on future profits of the adjustment for the current year under/over recovery in future tariff rates;
• Future investments: The Group funds a portion of capital projects through existing resources. The dividend policy considers expected and committed future investments; and
• Liquidity: As noted previously the Group’s principal financial risk is that there is inadequate liquidity in the event of a significant regulatory under recovery. The dividend policy considers the prudent management of this risk.
Having considered these factors the Directors of the Group do not propose the payment of any further dividend for the year ended 30 September 2013.
Directors’ and Secretary’s Interest in Shares The Directors and Secretary who held office between 1 October 2012 and 30 September 2013 had no beneficial interest in the shares of the Company. One ordinary share of the Company is held by the Minister for Communications, Energy and Natural Resources and the remainder of the issued share capital is held by the Minister for Public Expenditure and Reform, or on his behalf. John O’Connor, Fintan Slye and Niamh Cahill hold one share each in the share capital of the Company on behalf of the Minister for Public Expenditure and Reform. On retirement, Bernie Gray transferred her shareholding to John O’Connor.
Political Donations The Group does not make political donations.
Going Concern The Financial Statements are prepared on a going concern basis as the Board, after making appropriate enquiries, is satisfied that the Group has adequate resources to continue in operation for the foreseeable future.
Accounting Records The measures that the Directors have taken to ensure compliance with Section 202 of the Companies Act, 1990 are the employment of appropriately qualified accounting personnel and the use of suitable accounting systems and procedures. The books of account are kept at The Oval, 160 Shelbourne Road, Ballsbridge, Dublin 4.
Post Balance Sheet Events Details of significant post balance sheet events are set forth in Note 29 of the financial statements.
Auditors The auditors, Deloitte & Touche, Chartered Accountants and Statutory Audit Firm, continue in office in accordance with Section 160(2) of the Companies Act, 1963.
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Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the Financial Statements. The Directors have elected to prepare Financial Statements for the Group in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Irish company law requires the Directors to prepare Financial Statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing those Financial Statements, the Directors are required to:
• Select suitable accounting policies for the Group and the Parent Company Financial Statements and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• Provide additional disclosure when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance;
• State that the Financial Statements comply with IFRSs as adopted by the European Union; and
• Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union and comply with Irish statute comprising the Companies Acts, 1963 to 2012. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. On behalf of the Board:
John O’Connor Chairperson Richard Sterling Chairperson Audit Committee Fintan Slye Chief Executive
18 December 2013
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Independent Auditor’s Report to the Members of EirGrid plc
We have audited the financial statements of EirGrid plc for the year ended 30 September 2013 which comprise the Group Financial Statements: the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the Company Financial Statements: the Company Statement of Comprehensive Income, the Company Balance Sheet, the Company Statement of Changes in Equity, the Company Cash Flow Statement and the related notes 1 to 30. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Section 193 of the Companies Act, 1990. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements giving a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. The other information comprises only the Directors’ Report, the Chairperson’s Report, the Chief Executive’s Report and the Financial Review. Our responsibilities do not extend to other information.
Opinion on financial statements In our opinion:
• The group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 30 September 2013 and of its profit for the year then ended;
• The parent company financial statements give a true and fair view, in accordance with IFRSs, as adopted by the European Union as applied in accordance with the provisions of the Companies Acts, 1963 to 2012, of the state of the parent company’s affairs as at 30 September 2013 and of its profit for the year then ended; and
• The financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2012 and, as regards the group financial statements, Article 4 of the IAS Regulation.
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Matters on which we are required to report by the Companies Acts, 1963 to 2012 • We have obtained all the information and explanations which we consider necessary for the purposes of our audit;
• In our opinion proper books of account have been kept by the parent company;
• The parent company balance sheet is in agreement with the books of account;
• In our opinion the information given in the Directors’ Report is consistent with the financial statements; and
• The net assets of the parent company, as stated in the parent company balance sheet are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 30 September 2013 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the parent company.
Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Acts, 1963 to 2012 we are required to report to you if, in our opinion the disclosures of directors’ remuneration and transactions specified by law are not made. Under the Code of Practice for the Governance of State Bodies (“the Code”), we are required to report to you if the statement regarding the system of internal financial control required under the Code as included in the Directors’ Report does not reflect the Group’s compliance with paragraph 13.1 (iii) of the Code or if it is not consistent with the information of which we are aware from our audit work on the financial statements.
Glenn Gillard For and on behalf of Deloitte & Touche Chartered Accountants and Statutory Audit Firm Dublin
18 December 2013
73 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Consolidated Income Statement for the year to 30 September 2013
Non-EWIC EWIC* Business Business Total Year to Year to Year to Year to 30 Sep 2013 30 Sep 2013 30 Sep 2013 30 Sep 2012 Notes € ’000 € ’000 € ’000 € ’000
Revenue 3 571,095 50,965 622,060 542,232 Direct costs 3 (459,175) - (459,175) (438,797)
Gross profit 111,920 50,965 162,885 103,435 Other operating costs 5 (82,991) (6,423) (89,414) (80,110)
Operating profit 28,929 44,542 73,471 23,325
Interest and other income 6 420 46 466 573 Finance costs 6 (2,217) (10,635) (12,852) (3,082)
Profit before taxation 8 27,132 33,953 61,085 20,816 Income tax (expense)/credit 9 (7,718) 828
Profit for the year 53,367 21,644
On behalf of the Board:
John O’Connor Chairperson Richard Sterling Chairperson Audit Committee Fintan Slye Chief Executive
18 December 2013
*EWIC Business The Group owns and operates the East West Interconnector linking the electricity grids in Ireland and Great Britain. As the year to 30 September 2013 represents the first year of operation of EWIC, the impact of EWIC on the Income Statement has been shown separately to aid comparability. More detail is provided in Note 7.
74 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Consolidated Statement of Comprehensive Income for the year to 30 September 2013
Year to Year to 30 Sep 2013 30 Sep 2012 Notes € ’000 € ’000
Items that may be reclassified subsequently to profit or loss: Movement in unrealised loss on cash flow hedges 27 22,557 (31,716) Deferred tax attributable to movement in unrealised (gain)/loss on cash flow hedges 9 (2,881) 3,859 Currency translation differences 264 (197)
Total of items that may be reclassified subsequently to profit or loss 19,940 (28,054)
Items that will not be reclassified to profit or loss: Actuarial gain/(loss) on retirement benefit schemes 23 12,303 (7,289) Deferred tax attributable to actuarial (gain)/loss 9 (1,506) 979
Total of items that will not be reclassified to profit or loss 10,797 (6,310)
Profit for the year 53,367 21,644
Total comprehensive income/(expense) for the year 84,104 (12,720)
Company Statement of Comprehensive Income for the year to 30 September 2013 Year to Year to 30 Sep 2013 30 Sep 2012 Notes € ’000 € ’000
Items that may be reclassified subsequently to profit or loss: Movement in unrealised loss on cash flow hedges 27 14,883 (20,254) Deferred tax attributable to movement in unrealised (gain)/loss on cash flow hedges 9 (1,860) 2,531
Total of items that may be reclassified subsequently to profit or loss 13,023 (17,723)
Items that will not be reclassified to profit or loss: Actuarial gain/(loss) on retirement benefit scheme 23 12,724 (6,717) Deferred tax attributable to actuarial loss/(gain) 9 (1,591) 841
Total of items that will not be reclassified to profit or loss 11,133 (5,876)
Profit for the year 23,786 22,782
Total comprehensive income/(expense) for the year 47,942 (817)
75 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Consolidated Balance Sheet as at 30 September 2013
30 Sep 2013 30 Sep 2012 ASSETS Notes € ’000 € ’000 Non-current assets Intangible assets 12 16,401 18,908 Property, plant & equipment 14 609,567 574,223 Deferred tax asset 9 10,886 15,903 Trade and other receivables 15 1,093 1,089
Total non-current assets 637,947 610,123
Current assets Trade and other receivables 15 132,814 164,372 Current tax receivable 1,044 3,293 Cash and cash equivalents 19 172,254 164,745
Total current assets 306,112 332,410
Total assets 944,059 942,533
EQUITY AND LIABILITIES Capital and reserves Issued share capital 18 38 38 Capital reserve 49,182 49,182 Hedging reserve (54,588) (74,264) Translation reserve 153 (111) Retained earnings 160,624 100,460
Total equity 155,409 75,305
Non-current liabilities Derivative financial instruments 26 62,459 84,990 Deferred tax liability 9 7,647 4,516 Deferred income 17 108,440 79,280 Borrowings 25 383,707 403,812 Retirement benefit obligation 23 10,373 22,449
Total non-current liabilities 572,626 595,047
Current liabilities Borrowings 25 18,709 23,683 Deferred income 17 3,072 - Trade and other payables 16 194,243 248,498
Total current liabilities 216,024 272,181
Total liabilities 788,650 867,228
Total equity and liabilities 944,059 942,533
On behalf of the Board:
John O’Connor Chairperson Richard Sterling Chairperson Audit Committee Fintan Slye Chief Executive
18 December 2013
76 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Company Balance Sheet as at 30 September 2013
30 Sep 2013 30 Sep 2012 ASSETS Notes € ’000 € ’000 Non-current assets Investment in subsidiaries 13 155,711 161,821 Property, plant & equipment 14 44,338 48,239 Deferred tax asset 9 7,856 11,778 Trade and other receivables 15 130,267 146,981
Total non-current assets 338,172 368,819
Current assets Trade and other receivables 15 184,299 173,287 Current tax asset 1,551 1,610 Cash and cash equivalents 19 116,508 67,453
Total current assets 302,358 242,350
Total assets 640,530 611,169
EQUITY AND LIABILITIES Capital and reserves Issued share capital 18 38 38 Capital reserve 49,182 49,182 Hedging reserve (36,910) (49,933) Retained earnings 128,210 97,291
Total equity 140,520 96,578
Non-current liabilities Derivative financial instruments 26 42,183 57,066 Borrowings 25 254,364 277,928 Retirement benefit obligation 23 9,252 21,751
Total non-current liabilities 305,799 356,745
Current liabilities Borrowings 25 7,809 14,463 Trade and other payables 16 186,402 143,383
Total current liabilities 194,211 157,846
Total liabilities 500,010 514,591
Total equity and liabilities 640,530 611,169
On behalf of the Board:
John O’Connor Chairperson Richard Sterling Chairperson Audit Committee Fintan Slye Chief Executive
18 December 2013
77 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Consolidated Statement of Changes in Equity for the year to 30 September 2013
Total Issued attributable share Capital Hedging Translation Retained to equity capital reserve reserve reserve earnings holders € ’000 € ’000 € ’000 € ’000 € ’000 € ’000
Balance as at 1 October 2011 38 49,182 (46,447) 86 85,166 88,025
Total comprehensive (expense)/income for the year - - (27,817) (197) 15,294 (12,720)
Balance as at 30 September 2012 38 49,182 (74,264) (111) 100,460 75,305
Total comprehensive income for the year - - 19,676 264 64,164 84,104
Dividends - - - - (4,000) (4,000)
Balance as at 30 September 2013 38 49,182 (54,588) 153 160,624 155,409
Capital Reserve The capital reserve arose on the vesting of the TSO operations from ESB to the Company under the Transfer Scheme dated 1 July 2006. There have been no movements in the reserve since this date.
Hedging Reserve The hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instruments is recognised in profit or loss only when the hedged transaction impacts the profit or loss, or is included as a base adjustment to a non-financial hedged item.
Translation Reserve The translation reserve represents foreign exchange differences arising from the translation of the net assets of the Group’s foreign operations from their functional currency into EirGrid’s functional currency, being Euro, including the translation of the profits and losses of such operations from the average rate for the year to the closing rate at the Balance Sheet date.
Retained Earnings Retained earnings comprise accumulated earnings in the current year and prior years.
78 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Company Statement of Changes in Equity for the year to 30 September 2013
Total attributable Issued share Capital Hedging Retained to equity capital reserve reserve earnings holders € ’000 € ’000 € ’000 € ’000 € ’000
Balance as at 1 October 2011 38 49,182 (32,210) 80,385 97,395
Total comprehensive (expense)/income for the year - - (17,723) 16,906 (817)
Balance as at 30 September 2012 38 49,182 (49,933) 97,291 96,578
Total comprehensive income for the year - - 13,023 34,919 47,942
Dividends - - - (4,000) (4,000)
Balance as at 30 September 2013 38 49,182 (36,910) 128,210 140,520
Capital Reserve The capital reserve arose on the vesting of the TSO operations from ESB to the Company under the Transfer Scheme dated 1 July 2006. There have been no movements in the reserve since this date.
Hedging Reserve The hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instruments is recognised in profit or loss only when the hedged transaction impacts the profit or loss, or is included as a base adjustment to a non-financial hedged item.
Retained Earnings Retained earnings comprise accumulated earnings in the current year and prior years.
79 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Consolidated Cash Flow Statement for the year to 30 September 2013
Year to Year to 30 Sep 2013 30 Sep 2012 Notes € ’000 € ’000 Cash flows from operating activities Profit after taxation 53,367 21,644 Depreciation of property, plant and equipment 14 20,071 22,008 Amortisation of grant 17 (768) - Impairment of goodwill and intangible assets 12 1,481 - Interest and other income (466) (573) Finance costs 12,852 3,082 Pension charge 5,404 4,446 Foreign Exchange 30 (24) Income tax expense/(credit) 7,718 (828) Pension contributions paid (5,724) (5,720)
93,965 44,035 Movements in working capital Decrease/(increase) in trade and other receivables 31,498 (5,580) Increase in trade and other payables 14,984 25,945
Cash generated from operations 140,447 64,400
Income taxes paid (1,613) (4,077) Interest received 522 3,844 Finance costs paid (23,767) (20,149)
Net cash generated from operating activities 115,589 44,018
Cash flows from investing activities Purchase of property, plant and equipment (116,323) (197,011) Capital grants received 17 33,000 43,962
Net cash used in investing activities (83,323) (153,049)
Cash flows from financing activities Decrease in bank overdrafts (69) (97) Proceeds from borrowings 56,964 192,460 Borrowings repaid (81,221) (28,265)
Net cash generated from financing activities (24,326) 164,098
Net increase in cash and cash equivalents 7,940 55,067
Cash and cash equivalents at start of year 164,745 109,531 Effect of foreign exchange on cash and cash equivalents (431) 147
Cash and cash equivalents at end of year 19 172,254 164,745
80 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Company Cash Flow Statement for the year to 30 September 2013
Year to Year to 30 Sep 2013 30 Sep 2012 Notes € ’000 € ’000 Cash flows from operating activities Profit after taxation 23,786 22,779 Depreciation of property, plant and equipment 14 12,556 17,132 Interest and other income (1,240) (1,371) Finance costs 5,386 5,152 Pension charge 4,679 3,655 Income tax expense 125 921 Pension contributions paid (5,038) (4,998)
40,254 43,270 Movements in working capital Increase/(decrease) in trade and other receivables 12,906 (14,283) Increase in trade and other payables 39,055 18,407
Cash generated from operations 92,215 47,394
Income taxes paid/(received) 346 (2,985) Interest received 1,272 4,485 Finance costs paid (5,362) (5,711)
Net cash generated from operating activities 88,471 43,183
Cash flows from investing activities Advances to subsidiary (1,126) (130,659) Purchase of property, plant and equipment (8,071) (15,626)
Net cash used in investing activities (9,197) (146,285)
Cash flows from financing activities Decrease in bank overdrafts (69) (97) Proceeds from borrowings - 120,659 Borrowings repaid (30,150) (8,822)
Net cash generated from financing activities (30,219) 111,740
Net increase in cash and cash equivalents 49,055 8,638
Cash and cash equivalents at start of year 67,453 58,815
Cash and cash equivalents at end of year 19 116,508 67,453
81 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
Notes to the Financial Statements
1. General Information EirGrid plc (‘the Company’) is a public limited company, incorporated in Ireland, established pursuant to S.I. No 445 of 2000 – European Communities (Internal Market in Electricity) Regulations, 2000. The Company is licensed by the Commission for Energy Regulation as the Transmission System Operator (TSO) in Ireland and as Market Operator (MO) for the wholesale electricity market on the island of Ireland. SONI Ltd is licensed by the Northern Ireland Authority for Utility Regulation as the TSO in Northern Ireland and also holds an MO licence for the island of Ireland. EirGrid Interconnector Ltd is licensed by the Commission for Energy Regulation and the Office of the Gas and Electricity Markets (Ofgem) as the operator of the East West Interconnector. The registered office of EirGrid plc is The Oval, 160 Shelbourne Road, Ballsbridge, Dublin 4.
2. Statement of Accounting Policies
Basis of preparation The Group and Company Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. They are prepared on the basis of all IFRSs and Interpretations that are mandatory for periods ending 30 September 2013 and in the case of EirGrid plc Group and Company accounts, in accordance with the Irish Companies Acts, 1963 to 2012. The Directors are confident, on the basis of current financial projections and facilities available, that the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the accounts. The Financial Statements have been presented in Euro, the currency of the primary economic environment in which the Group and Company operate and have been prepared on a historical cost basis, except for the revaluation of certain financial instruments which are held at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The preparation of Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The accounting policies set out below have been consistently applied to all periods presented in these Financial Statements. The current period being reported on is the year to 30 September 2013. The comparative figures are for the year ended 30 September 2012.
Adoption of new standards At the date of authorisation of these Financial Statements, the following Standards and Interpretations which have not been applied in these Financial Statements were in issue but not yet effective for the accounting period reported on:
• IFRS 7 (Amendments) - Disclosures - Offsetting Financial Assets and Financial Liabilities (Effective 1 January 2013)
• IFRS 13 - Fair Value Measurement (Effective 1 January 2013)
• IFRS 10 - Consolidated Financial Instruments (Effective 1 January 2014)
• IFRS 11 - Joint Arrangements (Effective 1 January 2014)
• IFRS 12 - Disclosure of Interests in Other Entities (Effective 1 January 2014)
• IAS 36 (Amendments) - Recoverable amount disclosures for non-financial assets (Effective 1 January 2014)
• IAS 39 (Amendments) - Novation of derivatives and continuation of hedge accounting (Effective 1 January 2014)
The Directors are currently assessing the impact of these Standards and Interpretations on the Financial Statements.
82 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
2. Statement of Accounting Policies (continued) Basis of consolidation The Consolidated Financial Statements incorporate the Financial Statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired are included in the Consolidated Income Statement from the effective date of acquisition. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Joint ventures Joint venture arrangements that involve the establishment of a separate asset in which each venturer has an interest are referred to as jointly controlled assets. The Company’s share of the assets, liabilities, income and expenses of jointly controlled assets are combined with the equivalent items in the Financial Statements on a line-by-line basis.
Business combinations Business combinations from 1 April 2010 are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs are expensed as incurred. When the Group acquires a business it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through the Income Statement. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of contingent consideration which is deemed to be a financial asset or a financial liability will be recognised in accordance with IAS 39 in the Income Statement. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. Business combinations prior to 1 April 2010 were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets. Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously recognised goodwill. Contingent consideration was recognised if the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part of goodwill.
Goodwill Goodwill on acquisitions is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill acquired in a business combination is allocated, from the acquisition date, to the cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The goodwill impairment tests are undertaken at a consistent time in each annual period.
83 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
2. Statement of Accounting Policies (continued) Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised. Impairment losses arising in respect of goodwill are not reversed following recognition. Where a subsidiary is sold, any goodwill arising on acquisition, net of any impairments, is included in determining the profit or loss arising on disposal. Where goodwill forms part of a cash-generating unit and part of the operations within that unit are disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the proportion of the cash-generating unit retained.
Revenue Revenue primarily represents the income derived from the provision of electricity transmission, sale of capacity on the East West Interconnector and Market Operator services to customers during the year and excludes value added tax. Revenue includes the regulatory allowance received for the management of transmission constraint costs. Revenue, from 1 October 2012, includes the regulatory allowance received in respect of the debt service cost and operation costs of the EWIC. Tariff revenue is recognised when receivable from customers, based on metering data. Where revenue received or receivable exceeds the maximum amount permitted by regulatory agreements and adjustments will be made to future prices to reflect the over-recovery, no liability is recognised. Similarly no asset is recognised where a regulatory agreement permits adjustments to be made to future prices in respect of an under- recovery. However, in the circumstances of a fundamental change in market design, where revenue received or receivable exceeds the maximum amount permitted by regulatory agreements and adjustments will be made to future prices to reflect this over-recovery, a liability will be recognised. Revenue streams relating to collection of the public service obligation levy, Large Energy User (LEU) customer credits and renewable energy feed in tariffs are not recognised in the Financial Statements of the Group. In collection of these levies and tariffs the Group acts as an agent rather than a principal, assuming neither risks nor rewards. As Market Operator for the Single Electricity Market, the Group does not act on its own account in the sale or purchase of electricity. It does not take title to the electricity, nor is it exposed to credit risk on sale. Consequently the Group does not recognise as revenue monies derived from the sale of electricity. The payables and receivables associated with electricity trading are recognised in the Balance Sheet. Monies received from tariffs that are subject to regulatory determination are recognised as income. Unbilled income represents income from electricity transmission services which, in compliance with the regulatory timetable, has not been billed. Unbilled income is recognised on an accruals basis and is stated net of value added tax.
Direct costs Direct costs primarily represents the costs associated with the provision of electricity transmission services to customers during the year and excludes value added tax. Direct costs include transmission asset owner charges, transmission system constraint costs, ancillary services and interruptible load. Direct costs are recognised as they are incurred.
Operating profit The Group has adopted an Income Statement format which seeks to highlight significant items within the results for the period. Accordingly, operating profit is stated after charging direct costs and after other operating costs but before interest income and finance costs. Other operating costs primarily represents employee costs, professional fees, contractors and establishment costs. Other operating costs are recognised as they are incurred.
84 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
2. Statement of Accounting Policies (continued) Leases Leases are recognised from the date from which the lessee is entitled to exercise its right to use the leased asset. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern of the user’s benefit. Benefits receivable as an incentive to enter into an operating lease are spread on a straight-line basis over the lease term.
Foreign currencies The individual Financial Statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the Consolidated Financial Statements, the results and financial position of each Group entity are expressed in Euro, which is the functional currency of the Company and the presentation currency for the Consolidated Financial Statements. Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the transactions. At each Balance Sheet date, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date, with exchange differences arising recognised in the Consolidated Income Statement as they occur. On consolidation, the Income Statements of the Group’s two foreign currency subsidiaries are translated into Euro at the average exchange rate. The Balance Sheets of these subsidiaries are translated at rates of exchange ruling at the Balance Sheet date. Resulting exchange differences arising from the translation of the Group’s foreign currency subsidiaries are taken directly to a separate component of shareholders’ equity. Goodwill and fair value adjustments arising on the acquisition of the foreign subsidiaries are treated as assets and liabilities of the foreign subsidiaries and are translated at the closing rate.
Retirement benefit costs For defined benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each Balance Sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside profit or loss and presented in the Statement of Comprehensive Income. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefits obligations recognised in the Balance Sheet represent the present value of the defined benefit obligations reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the plan. The retirement benefit current service costs for employees engaged on capital projects are capitalised in the Balance Sheet as the costs are incurred.
Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date.
85 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
2. Statement of Accounting Policies (continued) Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Balance Sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and the Group intends to settle its current tax assets and liabilities on a net basis.
Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses, except for land which is shown at cost less impairment. Depreciation is recognised so as to write off the cost of assets over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each period end, with the effect of any changes in estimate accounted for on a prospective basis. The depreciation periods for the principal categories of property, plant and equipment are as follows: • Leasehold building improvements: over the period of the lease; • Freehold buildings and improvements: 5 to 15 years; • Fixtures and fittings: 5 years; • IT, telecommunications equipment and other: 3 to 8 years; and • Single Electricity Market asset: 5 years.
The depreciation periods for the East West Interconnector category within property, plant and equipment are as follows: • Cables: 40 years; • Converter stations, warehouse and equipment: 30 years; • Foreshore licences: 30 years; and • Spare transformer and spare parts: 30 years.
No depreciation is provided on freehold land or on assets in the course of construction. The Single Electricity Market asset is the central IT system used to settle and administer the wholesale electricity market in the island of Ireland. Assets in the course of construction are carried at cost less any recognised impairment loss. Costs include professional fees, wages and salaries, retirement benefit costs and any other costs incurred directly attributable to the construction of such assets. These assets are reclassified to an appropriate category once the asset is capable of operating in the manner intended by management. Depreciation of these assets commences when the assets are ready for their intended use. The gain or loss arising on the disposal or retirement of property, plant and equipment is determined as the difference between the net sales proceeds and the carrying amount of the asset and is recognised in the Income Statement.
86 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
2. Statement of Accounting Policies (continued) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Where variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash flow hedge of interest rate risk, the interest added to the cost of the qualifying asset is the net interest expense after the effect of hedging. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Intangible assets Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, these assets are reported at cost less accumulated amortisation and accumulated impairment losses. Where the intangible assets have a finite useful estimated life, amortisation is charged on a straight-line basis over their useful estimated lives. The Directors are of the view that TSO and MO licence agreements for Northern Ireland have indefinite lives. The following key factors were considered in determining the useful lives of the above licence agreements; expected usage, typical product life cycles of similar assets used in a similar way, stability of the industry in which the asset is operated, period of control over the asset and expiry dates of licence agreements. It is unlikely that the above licences will be cancelled and as the licences are open-ended and renewable and there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group, an indefinite life assumption is reasonable. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
Impairment of assets At each Balance Sheet date, the Group reviews the carrying amounts of its intangible assets and property, plant and equipment to determine whether there is an indication that those assets have suffered an impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit (CGU) to which the asset belongs. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognised immediately in the Income Statement, unless the relevant asset or CGU is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
87 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
2. Statement of Accounting Policies (continued) Grants Grants of a capital nature are accounted for as deferred income in the Balance Sheet and are released to profit or loss over the expected useful lives of the assets concerned. Grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
Financial assets and liabilities Financial assets and liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provisions of an instrument. Trade receivables are measured at initial recognition at invoice value, which approximates to fair value, and subsequently carried at amortised cost. Financial assets and liabilities are derecognised from the Balance Sheet when the Group ceases to be a party to the contractual provisions of the instrument. Where market participants have entered into Settlement Reallocation Agreements the related receivables and payables are stated net, as there is an intention to settle these simultaneously on a net basis under the trading and settlement code. Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Trade payables are measured at initial recognition at invoice value, which approximates to fair value and subsequently carried at amortised cost.
Derivative financial instruments The Group enters into interest rate swaps to manage its exposure to interest rate risk. The Group entered into foreign exchange forward contracts to manage its exposure to foreign currency risk arising from Sterling VAT receivables relating to the East West Interconnector project. Further details of derivative financial instruments are disclosed in note 27. Derivative financial instruments are initially recognised at fair value at the date the derivative contract is entered into and are subsequently re-measured to their fair value at each Balance Sheet date. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using discount factors interpolated from the interest rate curves at the reporting date. The fair value of the foreign exchange forwards at the reporting date are determined by measuring quoted forward exchange rates matching the maturity of the contracts. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
Hedging instruments The Group designates its interest rate swaps as cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item.
88 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
2. Statement of Accounting Policies (continued) The effective portion of changes in the fair value of interest rate swaps that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in finance costs in the Income Statement. Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss, on the same line of the Income Statement as the recognised hedged item, or is included as a base adjustment to a non-financial hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Note 27 sets out details of the fair values of the Group’s current interest rate swaps used for hedging purposes. Movements in the hedging reserve in equity are also detailed in the Statement of Comprehensive Income.
Interest-bearing loans and borrowings Interest-bearing loans and borrowings are initially recognised at fair value, which equates to the value of proceeds received net of any directly attributable arrangement costs. Subsequent to initial recognition these borrowings are stated at amortised cost using the effective interest rate method.
Finance income and costs Interest income is earned on bank deposits and is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s carrying value. Income is also earned through the charging of inflation adjusted interest on deferred costs in respect of transmission projects. Finance costs comprise interest on borrowings and related interest rate swaps. Finance costs are recognised as an expense in the period in which they are incurred, except where finance costs are directly attributable to the acquisition, construction or production of qualifying assets, in which case they would be accounted for as borrowing costs. Finance costs are calculated using the effective interest rate method, a method of calculating the amortised cost of a financial liability and allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability.
Critical accounting judgements and key sources of estimation uncertainty The preparation of Financial Statements requires management to make estimates and assumptions about the carrying amounts reported for assets and liabilities as at the Balance Sheet date and the amounts reported for revenue and expenses during the period that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. The nature of estimation means that actual outcomes could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.
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2. Statement of Accounting Policies (continued) Key sources of estimation and uncertainty and critical accounting judgements are as follows:
• Useful lives of property, plant and equipment The depreciation charge for property, plant and equipment depends primarily on the estimated lives of each type of asset and, in certain circumstances, estimates of residual value. The useful lives of assets are determined by management at the time the assets are acquired and are reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology. With the EWIC becoming operational during the period the determination of useful lives was a critical judgement. Historically, changes in useful lives have not resulted in material changes to the Group’s depreciation charge.
• Retirement benefits obligations The Group operates two defined benefit pension plans. The actuarial valuation of the pension plan liabilities are based on various financial and demographic assumptions about the future including discount rates, inflation, salary increases, pension increases and mortality rates. The Group’s obligation in respect of the plans are calculated by independent qualified actuaries and are updated at least annually. The obligation at 30 September 2013 is €102.0m (2012: €100.7m) and the fair value of plan assets is €91.6m (2012: €78.3m). This gives a net pension deficit of €10.4m (2012: €22.4m).
• Deferred tax Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which any unused tax losses and unused tax credits can be utilised. The Group estimates the most probable amount of future taxable profits, using assumptions consistent with those employed in impairment calculations. These calculations require the use of estimates. The net deferred tax asset at 30 September 2013 was €3.2m (2012: net deferred tax asset of €11.4m).
• Intangible assets The Group tests annually whether its goodwill and licence agreement assets have suffered any impairment. The recoverable amount of the intangible assets allocated to a Cash Generating Unit (CGU) has been determined by value in use calculations, which use budgets and forecasts covering the period to 30 September 2018. These calculations require the use of estimates and assumptions, which are discussed in detail in note 12. Intangible assets at 30 September 2013 were €16.4m (2012: €18.9m).
• Commencement of operation of the EWIC The delay in the commencement of full operation of the EWIC from 1 October 2012 to 1 May 2013 gave rise to certain critical judgements including the treatment of the mismatch of the tariff collection period (commencing 1 October) and the date of full operation. In line with the accounting policy for revenue, over recovery of regulatory revenue has not been provided for in the Financial Statements. Full detail on the key judgements in respect of the EWIC is included in Note 7.
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3. Segment Information An operating segment is a component of the entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Board, the entity’s chief operating decision maker, to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. The Group is analysed into four main reportable segments for internal reporting purposes:
• EirGrid Transmission System Operator (‘EirGrid TSO’), which derives its revenue from providing services as the TSO in Ireland and is regulated by the Commission for Energy Regulation.
• Single Electricity Market Operator (‘SEMO’), which derives its revenue from acting as the Market Operator for the wholesale electricity market on the island of Ireland.
• SONI Transmission System Operator (‘SONI TSO’), which is licensed by the Northern Ireland Authority for Utility Regulation and derives its revenue from acting as the TSO in Northern Ireland. Trading in EirGrid UK Holdings Limited, the holding company of the SONI subsidiary, has been included in the SONI segment.
• Operation and the ownership of East West Interconnector (‘EWIC’), being the link between the electricity grids of Ireland and Great Britain.
The segment results for the year ended 30 September 2013 are as follows: Notes EirGrid SONI Elimin- TSO SEMO TSO EWIC ations Total € ’000 € ’000 € ’000 € ’000 € ’000 € ’000 Income Statement items
Segment revenue 308,824 186,034 108,196 50,965 (31,959) 622,060 Direct costs (252,458) (161,760) (76,916) - 31,959 (459,175) Gross profit 56,366 24,274 31,280 50,965 - 162,885 Other operating costs (51,962) (16,231) (14,798) (6,423) - (89,414) Operating profit 4,404 8,043 16,482 44,542 - 73,471 Interest and other income 466 Finance costs (12,852) Profit before taxation 61,085 Income tax expense (7,718) Profit for the year 53,367
Balance Sheet items
Segment assets 228,140 79,127 28,171 592,220 - 927,658 Goodwill and intangible assets 12 16,401 Total assets as reported in the Consolidated Balance Sheet 944,059
Segment liabilities 433,331 54,442 25,788 275,089 - 788,650 Total liabilities as reported in the Consolidated Balance Sheet 788,650
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3. Segment Information (continued) The comparative segment results for the year ended 30 September 2012 are as follows:
Notes EirGrid SONI TSO SEMO TSO EWIC Total € ’000 € ’000 € ’000 € ’000 € ’000 Income Statement items
Segment revenue 263,488 206,937 71,807 - 542,232 Direct costs (191,622) (183,054) (64,121) - (438,797) Gross profit 71,866 23,883 7,686 - 103,435 Other operating costs (45,984) (21,791) (12,277) (58) (80,110) Operating profit/(loss) 25,882 2,092 (4,591) (58) 23,325 Interest and other income 573 Finance costs (3,082) Profit before taxation 20,816 Income tax credit 828 Profit for the year 21,644
Balance Sheet items Segment assets 181,430 114,178 20,907 607,110 923,625 Goodwill and intangible assets 12 18,908 Total assets as reported in the Consolidated Balance Sheet 942,533
Segment liabilities 440,793 91,296 33,430 301,709 867,228 Total liabilities as reported in the Consolidated Balance Sheet 867,228
Geographical information Revenue Non-current assets Year to 30 Year to 30 30 Sep 30 Sep Sep 2013 Sep 2012 2013 2012 € ’000 € ’000 € ’000 € ’000
Ireland 467,355 418,690 607,097 575,595 UK 154,705 123,542 30,850 34,528
Total 622,060 542,232 637,947 610,123
Information about major customers Included in EirGrid TSO segment revenues of €308.8m for the year to 30 September 2013 (2012: €263.5m) are revenues of approximately €142.8m (2012: €124.6m), €63.1m (2012: €38.9m), €43.4m (2012: €34.3m) and €30.4m (2012: €31.1m) which arose from sales to the segment’s four largest customers. Included in SEMO segment revenues of €186.0m for the year to 30 September 2013 (2012: €206.9m) are revenues of approximately €62.2m (2012: €75.7m), €45.9m (2012: €54.2m), €44.0m (2012: €42.1m) and €16.5m (2012: €20.9m) which arose from sales to the segment’s four largest customers. Included in SONI TSO segment revenues of €108.2m for the year to 30 September 2013 (2012: €71.8m) are revenues of approximately €42.8m (2012: €40.7m), €21.5m (2012: €13.4m) and €11.9m (2012: €12.5m) which arose from sales to the segment’s three largest customers.
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4. Employees The average number of persons employed by the Group during the year to 30 September 2013 was 404 (2012: 373), excluding staff engaged on capital projects. The average number of persons engaged on capital projects during the year to 30 September 2013 was 45 (2012: 55). The staff costs associated with these employees have been capitalised and totalled €4.8m for the year to 30 September 2013 (2012: €5.5m). Average number of employees in year by business activity: 30 Sep 2013 30 Sep 2012 Number Number
EirGrid TSO 253 229 SONI TSO 88 83 SEMO 63 61 Capital projects 45 55
Total 449 428
Total remuneration charged to the Income Statement, including the executive Director’s salary, comprised:
Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Wages and salaries 30,421 27,512 Social welfare costs 3,333 2,731 Pension costs 5,603 4,603
Total 39,357 34,846
5. Other Operating Costs Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Employee costs (note 4) 39,357 34,846 Depreciation of non-current assets (note 14) 20,071 22,008 Amortisation of grant (note 17) (768) - Operations and maintenance 29,243 23,288 Loss/(gain) on derivative financial instruments 30 (32) Impairment of intangible assets (note 12) 1,481 -
Total 89,414 80,110
The loss/(gain) on derivative financial instruments in 2013 and 2012 arose from purchases of foreign exchange rate forward contracts. These contracts were used to mitigate the foreign currency exchange risk on Sterling VAT receivables, which arose as a result of the East West Interconnector project. The purchases of foreign exchange rate forward contracts were non-speculative.
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6. Interest and Other Income, and Finance Costs Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000 Interest income: Interest income on deposits 466 573
Total 466 573
Finance costs: Interest on borrowings and related interest rate swaps 12,852 3,082
The Group is exposed to interest rate risk as it borrows funds at floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings through the use of interest rate swap contracts.
7. East West Interconnector Operations Due to the significance of the East West Interconnector (EWIC) linking the electricity grids in Ireland and Great Britain coming into operation during the year, the impact of EWIC on the Income Statement has been presented in a separate column on the face of the Income Statement. EWIC was due to go into full operation on 1 October 2012, accordingly the regulated tariff for the year was based on full operation from that period and commenced on that date. However, commencement of full operation was delayed until 1 May 2013 as a result of resolution of final technical issues. Revenue for the EWIC for the period comprised the full year regulated tariff of €33m. €11m of this revenue was in respect of debt service cost on EWIC borrowings which was capitalised during the period of up to 1 May when the EWIC became fully operational in accordance with the Group’s accounting policy for capitalising borrowing costs. This results in a mismatch in the recognition of the income and the related expense. In addition, due to the delay in the EWIC, certain expected operating and maintenance costs which had been included in the regulatory tariff determination were not incurred and resulted in an over recovery of revenue in the year. In line with normal practice any regulatory over recovery arising in the year will be returned to consumers in a later tariff period and has not been provided for in the financial statements. The remainder of revenue in respect of the EWIC relates to auction receipts totalling €15m and also income from provision of other system services. Auction receipts are a new revenue stream for the group arising from the operation of the EWIC whereby capacity is sold on the interconnector. Auction receipts form part of the determination of regulatory over recoveries which are recaptured in future periods. The 2013 tariff rate anticipated auction receipts being €10m. Full year Profit Before Tax for EWIC operations was €34.0m, of which €15.8m is in respect of the period prior to full operation. In line with normal practice any regulatory over recovery arising in the year will be returned to consumers in a later tariff period and has not been provided for in the financial statements. As disclosed in Note 14, as EWIC went operational during the period, the cost of the asset under construction to date of €554m was transferred from the asset under construction category and depreciation commenced from that date. The EWIC cost includes additional interest costs of €11m capitalised during the period of up to 1 May when the EWIC became fully operational in accordance with the company’s accounting policy for capitalising borrowing costs. The Group is committed to final expenditure of €8m in respect of EWIC which will result in total cost of construction of €562m. Note 26 and 27 includes details of the Group’s financing and financial risk management. All borrowings have been fully hedged using interest rate swaps as disclosed in note 27. In addition, as part of the financial close out of the EWIC project, the recognition of a reimbursement amount of €10m has been deferred in line with the specific treatment in the regulatory over recoveries that arose due to the limited availability of the EWIC during the year (see note 16).
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8. Profit Before Taxation The profit before taxation is stated after charging/(crediting) the following: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Depreciation 20,071 22,008 Amortisation of grant (768) - Operating lease rentals 1,999 2,004 Foreign exchange loss/(gain) 1,016 (84)
Directors’ remuneration in respect of the financial year is analysed as follows: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
- for services as a Director 108 127 - for executive manager services 211 223
Total 319 350
Auditor’s remuneration in respect of the financial year is analysed as follows: Group Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
- audit of group companies 110 110 - other assurance services 2 5 - tax advisory services 130 50 - other non-audit services 3 8
Company Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
- audit of individual company amounts 45 45 - other assurance services 2 5 - tax advisory services 52 39 - other non-audit services 3 3
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9. Income Taxes Charge to Income Statement: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Current tax expense/(credit) 3,783 (407) Deferred tax relating to the origination and reversal of temporary differences 4,500 (84) Effect of changes in tax rates and laws (565) (337)
Income tax expense/(credit) for the year 7,718 (828)
The total charge for the year can be reconciled to the accounting profit as follows: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Profit before tax 61,085 20,816
Taxation at standard rate of 12.5% (2012: 12.5%) 7,636 2,602
Effect of higher rates of tax on other income 173 197 Effect of income and expenses excluded in determining taxable profit 171 12 Effect of R&D tax credit (227) (281) Effect of capitalised interest allowable for tax (1,342) (1,934) Effect on deferred tax balances due to the change in the UK income tax rate (565) (337) Effect of higher rates of tax on (losses)/gains in UK subsidiaries 1,911 (631) Over provision in prior years (95) (578) Effect of losses forward on UK subsidiaries - 144 Other differences 56 (22)
Income tax recognised in Income Statement 7,718 (828)
Corporation tax in respect of the Group’s UK based operations is calculated at 23.5% (2012: 25%) of the estimated assessable profit for the year. The standard rate of UK corporation tax changed from 24% to 23% with effect from 1 April 2013. The tax charge in future periods will be impacted by any changes to the corporation tax rate in force in the countries in which the Group operates. In the UK, the Finance Act 2013 included a reduction in the rate of corporate income tax from 24% to 23%. This change was substantively enacted on 2 July 2013. The rate reduction applied from 1 April 2013. Furthermore, the Finance Act 2013 promulgated and substantively enacted on 2 July 2013 a further reduction in the corporate income tax to 21% from 1 April 2014 and to 20% from 1 April 2015. Deferred tax balances must be recognised at the future tax rate applicable when the balance is expected to unwind. As such, the rate reduction to 20% is reflected in the closing deferred tax balance. Had this change not been substantively enacted at 30 September 2013, the Group’s deferred tax asset would have been increased by €0.05m, with €0.1m credited to equity and €0.06m charged to the Consolidated Income Statement.
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9. Income Taxes (continued) Deferred tax assets/(liabilities) arise from the following: Accelerated Retirement Cash Section Intangible tax benefits flow Tax 75 Group assets depreciation obligations hedges losses payment Total € ’000 € ’000 € ’000 € ’000 € ’000 € ’000 € ’000
Deferred tax (liability)/asset as at 1 October 2011 (4,312) 1,081 1,968 6,829 117 736 6,419
Credit/(charge) to the Income Statement for the year 345 690 (73) - (122) (419) 421
(Charge)/credit to the Statement of Comprehensive Income - - 979 3,859 - - 4,838
Exchange differences (357) (38) 5 44 5 50 (291)
Deferred tax (liability)/asset as at 30 September 2012 (4,324) 1,733 2,879 10,732 - 367 11,387
Credit/(charge) to the Income Statement for the year 841 (6,109) 14 - 1,669 (350) (3,935)
Charge to the Statement of Comprehensive Income - - (1,506) (2,881) - - (4,387)
Exchange differences 202 10 (7) (14) - (17) 174
Deferred tax (liability)/asset as at 30 September 2013 (3,281) (4,366) 1,380 7,837 1,669 - 3,239
Deferred tax asset - - 1,380 7,837 1,669 - 10,886 Deferred tax liability (3,281) (4,366) - - - - (7,647)
Total (3,281) (4,366) 1,380 7,837 1,669 - 3,239
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9. Income Taxes (continued) Accelerated Retirement Cash tax benefits flow Company depreciation obligations hedges Total € ’000 € ’000 € ’000 € ’000
Deferred tax asset as at 1 October 2011 1,687 1,969 4,602 8,258 Credit/(charge) to the Income Statement for the year 237 (89) - 148 (Charge)/credit to the Statement of Comprehensive Income - 841 2,531 3,372
Deferred tax asset as at 30 September 2012 1,924 2,721 7,133 11,778
(Charge)/credit to the Income Statement for the year (498) 27 - (471) Charge to the Statement of Comprehensive Income - (1,591) (1,860) (3,451)
Deferred tax asset as at 30 September 2013 1,426 1,157 5,273 7,856
Analysis of deferred tax assets/(liabilities) by tax jurisdiction:
Group Company 30 Sep 30 Sep 30 Sep 30 Sep 2013 2012 2013 2012 € ’000 € ’000 € ’000 € ’000
Ireland 6,204 15,138 7,856 11,778 UK (2,965) (3,751) - -
Net deferred tax asset 3,239 11,387 7,856 11,778
10. Company Income Statement As permitted by section 148(8) of the Companies Act, 1963 and section 7(1A) of the Companies (Amendment) Act, 1986 the Parent Company is availing of the exemption from presenting its separate Income Statement to the AGM and from filing it with the Companies Registration Office. The consolidated profit for the year to 30 September 2013 includes a profit attributable after tax to the Company of €23,786,000 (2012: €22,782,000).
11. Dividends As shown in note 18 the company has one class of share capital in issue, Ordinary Shares. The dividends in respect of this class of share capital are as follows: 30 Sep 2013 30 Sep 2012 Dividends to Shareholders € ’000 € ’000 Equity Interim - €133.333 per Ordinary Share (paid in November 2013) 4,000 -
Total 4,000 -
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12. Intangible Assets Licence Group Goodwill agreements Total € ’000 € ’000 € ’000 Cost Balance as at 1 October 2011 4,476 18,234 22,710 Exchange differences 385 1,637 2,022 Balance as at 30 September 2012 4,861 19,871 24,732 Exchange differences (253) (1,075) (1,328) Balance as at 30 September 2013 4,608 18,796 23,404
Accumulated Impairment Losses Balance as at 1 October 2011 4,381 982 5,363 Exchange differences 377 84 461 Balance as at 30 September 2012 4,758 1,066 5,824 Impairment charge 98 1,383 1,481 Exchange differences (248) (54) (302) Balance as at 30 September 2013 4,608 2,395 7,003
Carrying amount as at 30 September 2013 - 16,401 16,401 Carrying amount as at 30 September 2012 103 18,805 18,908
At the Balance Sheet date, the value of capitalised goodwill and licence agreements was allocated to the Group’s Cash- Generating Units (CGUs) to assess possible impairment. A summary of intangible asset allocation by principal CGU, is as follows: 30 Sep 2013 30 Sep 2012 € ’000 € ’000
SONI TSO 13,519 15,868 SEMO 2,882 3,040
Total 16,401 18,908
The recoverable amount of the intangible assets allocated to a CGU has been determined by value in use calculations, which use budgets and forecasts covering the period to 30 September 2018. This is the period to which management believe that discrete forecasts regarding expected cash flows can reasonably be made. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and anticipated regulatory recoveries arising from price controls. The key assumptions used within the calculations include:
• SONI TSO and SEMO profitability levels have been based on the regulatory price controls agreed in 2011 and 2013 respectively. The SONI price control covers the period from 2010-2015, the SEMO price control covers the period from 2013-2016. Estimated regulatory recoveries have been used to forecast profitability levels in the period beyond the current price controls;
• Discount rates of 4.81% and 4.95% (2012: 5.25% and 4.95%) have been assumed for the SEMO and SONI TSO CGUs respectively, based on the regulatory price controls agreed in 2011 and 2013;
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12. Intangible Assets (continued) • Growth rates of 2.0% (2012: 2.0%) have been assumed into perpetuity for SEMO and SONI TSO regulatory asset bases (RABs). A nil% growth rate (2012: nil%) has been assumed into perpetuity for the SEMO and SONI TSO regulatory incentives. These assumptions reflect management’s expectation for long-term growth.
At 30 September 2013, before impairment testing, goodwill of €0.1m and licence agreements of €15.8m were allocated to SONI TSO, which derives its revenue acting as the Transmission System Operator for Northern Ireland. On the basis of the above assumptions the Directors have concluded that there is an impairment to goodwill and license agreements of €1.5m. This impairment loss is recognised within operating costs in the Consolidated Income Statement. At 30 September 2013, before impairment testing, goodwill of €nil and licence agreements of €3.0m were allocated to SEMO, which derives its revenue acting as the Market Operator for SEM. On the basis of the above assumptions the Directors have concluded that there is no impairment charge. At 30 September 2012, the Directors concluded there was no impairment charge. Impairment testing is dependent on management’s estimates and judgements, in particular in relation to the forecasting of future cash flows, the discount rates applied to those cash flows and the expected long term growth rates. The Group has conducted a sensitivity analysis on the impairment test of each of the CGU’s carrying values. An increase in the discount rate of 0.5% would result in an impairment to the value of the licence in the SEMO CGU of €nil (2012: €0.2m) and an additional impairment to the value of the goodwill and license in the SONI TSO CGU of €nil (2012: €0.1m) and €2.6m (2012: €1.3m) respectively. A decrease in the RAB perpetuity growth rate of 1% would result in an impairment to the value of the licence in the SEMO CGU of €nil (2012: €1.9m) and an additional impairment to the value of the goodwill and licence in the SONI CGU of €nil (2012: €0.1m) and €3.5m (2012: €2.0m) respectively.
13. Investment in Subsidiaries Investment in Subsidiaries 30 Sep 2013 30 Sep 2012 Company € ’000 € ’000
Balance at start of year 161,821 98,376
Injections of capital to EirGrid Interconnector Limited 423 6,746 Injections of capital to EirGrid Telecoms Limited 193 - On-lending of debt - 56,699 Adjustment to capital contribution (6,726) -
Balance at end of year 155,711 161,821
Movements in the year relate to further investments in EirGrid Interconnector Limited and EirGrid Telecoms Limited. During the year, the Company advanced €0.7m (2012: €10.0m) to EirGrid Interconnector Limited via an intercompany loan and on-lent €nil (2012: €120.7m) of debt. The Company has made total advances of €31.7m (2012: €31.0m) to EirGrid Interconnector Limited, and on-lent total debt of €285.0m (2012: €285.0m). No interest is payable on these amounts under the intercompany loan agreement. During the year, EirGrid Interconnector Limited made a once off accelerated repayment of on-lent debt of €15.8m (2012: €nil). As a result of this repayment, an adjustment to the capital contribution previously recognised in respect of on-lent debt of €6.7m (2012: €nil) is included above. The Company has recognised an investment of €155.5m (2012: €161.8m) in EirGrid Interconnector Limited, representing the present value estimate of the commercial rate of interest foregone by the Company over the life of these loans.
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13. Investment in Subsidiaries (continued) The Group’s subsidiaries, all of which are wholly owned, are: Subsidiary Country of Incorporation Primary Activity
EirGrid UK Holdings Limited Northern Ireland Holding company SONI Limited Northern Ireland TSO EirGrid Interconnector Limited Ireland Interconnection EirGrid Telecoms Limited Ireland Telecommunications
EirGrid UK Holdings Limited, EirGrid Interconnector Limited and EirGrid Telecoms Limited are owned directly by the Company. SONI Limited is owned by EirGrid UK Holdings Limited. EirGrid plc and EirGrid Interconnector Limited are parties to certain financing agreements regarding the construction of the East West Interconnector which effectively require approval from lending banks for any distributions from EirGrid Interconnector Limited to EirGrid plc. The registered office of EirGrid Interconnector Limited and EirGrid Telecoms Limited is The Oval, 160 Shelbourne Road, Ballsbridge, Dublin 4. The registered office of EirGrid UK Holdings Limited and SONI Limited is Castlereagh House, 12 Manse Road, Belfast.
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14. Property, Plant & Equipment IT, telecomm- Single Land and Fixtures unications Electricity Assets under buildings and equipment Market Construction Group * fittings and other ** EWIC *** Total € ’000 € ’000 € ’000 € ’000 € ’000 € ’000 € ’000 Cost Balance as at 1 Oct 2011 11,715 1,660 55,442 49,265 - 289,972 408,054 Additions 3 - 359 - - 250,982 251,344 Disposals - - (400) - - - (400) Transfers - 21 20,778 - - (20,799) - Exchange differences 263 4 999 798 - 13 2,077
Balance as at 30 Sept 2012 11,981 1,685 77,178 50,063 - 520,168 661,075
Additions - - 3,703 - - 52,247 55,950 Transfers 149 401 10,454 - 554,087 (565,091) - Exchange differences (173) (2) (855) (524) - (11) (1,565)
Balance as at 30 Sept 2013 11,957 2,084 90,480 49,539 554,087 7,313 715,460
Depreciation Balance as at 1 Oct 2011 1,638 901 25,800 35,615 - - 63,954 Charge 486 333 10,691 10,498 - - 22,008 Disposals - - (400) - - - (400) Exchange differences 175 2 427 686 - - 1,290
Balance as at 30 Sept 2012 2,299 1,236 36,518 46,799 - - 86,852
Charge 497 309 13,217 2,543 3,505 - 20,071 Exchange differences (116) (1) (397) (516) - - (1,030)
Balance as at 30 Sept 2013 2,680 1,544 49,338 48,826 3,505 - 105,893
Carrying amount as at 30 Sept 2013 9,277 540 41,142 713 550,582 7,313 609,567
Carrying amount as at 30 Sept 2012 9,682 449 40,660 3,264 - 520,168 574,223
* The cost of the Group’s buildings include leasehold improvements. ** The Single Electricity Market asset is the central IT system used to settle and administer the wholesale electricity market in the island of Ireland. *** Assets under Construction consist of the following: 30 Sep 2013 30 Sep 2012 € ’000 € ’000 IT and telecommunications equipment 7,313 9,032 East West Interconnector project - 511,136
Total 7,313 520,168
Assets under Construction include capitalised interest costs of €nil (2012: €25.5m).
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14. Property, Plant & Equipment (continued)
IT, telecomm- Single Fixtures unications Electricity Assets under Buildings and equipment Market Construction Company * fittings and other ** *** Total € ’000 € ’000 € ’000 € ’000 € ’000 € ’000 Cost Balance as at 1 Oct 2011 10,407 1,623 48,517 41,418 9,006 110,971 Additions - - - - 16,258 16,258 Transfers (including intra-Group) - 21 15,444 - (15,465) -
Balance as at 30 Sept 2012 10,407 1,644 63,961 41,418 9,799 127,229
Additions - - 2,014 - 6,641 8,655 Transfers - 193 10,349 - (10,542) -
Balance as at 30 Sept 2013 10,407 1,837 76,324 41,418 5,898 135,884
Depreciation Balance as at 1 Oct 2011 1,376 887 29,292 30,303 - 61,858 Charge 433 325 8,162 8,212 - 17,132
Balance as at 30 Sept 2012 1,809 1,212 37,454 38,515 - 78,990
Charge 434 303 9,884 1,935 - 12,556
Balance as at 30 Sept 2013 2,243 1,515 47,338 40,450 - 91,546
Carrying amount as at 30 Sept 2013 8,164 322 28,986 968 5,898 44,338
Carrying amount as at 30 Sept 2012 8,598 432 26,507 2,903 9,799 48,239
* The cost of the Company’s buildings represents leasehold improvements. See note 20 for details of the lease. ** The Single Electricity Market asset is the central IT system used to settle and administer the wholesale electricity market in the island of Ireland. *** Assets under Construction consist of the following: 30 Sep 2013 30 Sep 2012 € ’000 € ’000
IT and telecommunications equipment 5,898 9,799
103 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
15. Trade and other Receivables Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000 Amounts due in less than one year: Trade receivables 21,758 73,570 12,717 51,505 Prepayments and accrued income 61,837 50,440 56,197 46,204 Unbilled receivables 49,219 40,046 49,219 40,046 Other receivables - 316 - 241 Amounts owed by subsidiary undertakings - - 66,166 35,291
Total 132,814 164,372 184,299 173,287
Amounts due in more than one year: Prepayments and accrued income 1,093 1,089 - - Amounts owed by subsidiary undertakings - - 130,267 146,981
Total 133,907 165,461 314,566 320,268
The Directors consider that the carrying amount of trade and other receivables approximates their fair value. Unbilled receivables primarily consists of income for the final two months of the accounting year, which, in compliance with the regulatory timetable, had not been billed as at the respective year ends. Group and Company prepayments and accrued income balances include deferred costs in respect of transmission projects of €56.3m (2012: €45.0m), all of which may not be recoverable within twelve months. Prepayments due after more than one year consists of an upfront payment made on an operating lease to secure the use of a docklands site in relation to the East West Interconnector asset. Further details of the lease are shown in note 20.
16. Trade and other Payables Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Trade payables 81,017 116,451 67,538 94,568 Accruals 87,973 127,172 70,625 37,482 Dividends Payable 4,000 - 4,000 - Taxation and social welfare 11,253 4,875 11,923 7,222 Regulatory over-recoveries 10,000 - 10,000 - Amounts owed to subsidiary undertakings - - 22,316 4,111
Total 194,243 248,498 186,402 143,383
104 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
16. Trade and other Payables (continued) Taxation and social welfare comprises of the following: Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
PAYE/PRSI 1,120 1,077 895 862 VAT 9,947 3,444 10,846 6,006 Withholding tax 186 354 182 354
Total 11,253 4,875 11,923 7,222
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates their fair value. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. €18.1m (2012: €27.0m) of the Group trade payables balance and €6.5m (2012: €7.0m) of the Group accruals balance relates to the charges payable to ESB and NIE as Transmission Asset Owners in Ireland and Northern Ireland respectively. €18.1m (2012: €27.0m) of the Company trade payables balance relates to the charge payable to ESB as Transmission Asset Owner. Accruals consist mainly of the direct costs of running the transmission system for the last two months of the accounting period and uninvoiced work performed by suppliers on the East West Interconnector project during the final quarter of the year. As part of the financial close out of the EWIC project an amount of €10m (2012: €nil) has been set aside for specific regulatory over recoveries that arose due to the limited availability of the EWIC asset during the year.
17. Deferred Income Group Capital Grants € ’000
Balance as at 1 October 2011 35,318 Grants received 43,962
Balance as at 30 September 2012 79,280 Grants received 33,000 Amortisation of grant (768)
Balance as at 30 September 2013 111,512
Analysed as: € ’000
Current 3,072 Non-current 108,440
Balance as at 30 September 2013 111,512
Capital grants received during the year were related to the East West Interconnector project and were received from the EU Commission. The total grant funding available from the EU Commission for the project was €112.3m of which €112.3m has been received to date. There are no unfulfilled conditions or other contingencies attaching to capital grants received. Capital grants are amortised in line with depreciation of the EWIC asset.
105 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
18. Issued Share Capital Group and Company 30 Sep 2013 30 Sep 2012 € ’000 € ’000 Authorised: 30,000 ordinary shares of €1.25 each 38 38
Allotted, called-up and fully paid: 30,000 ordinary shares of €1.25 each 38 38
The Company has one class of ordinary share which carries no right to fixed income.
19. Cash and Cash Equivalents Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Cash and cash equivalents 172,254 164,745 116,508 67,453
Cash and cash equivalents primarily comprises cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. The credit risk on liquid funds is limited because the counterparties are banks with relatively high credit-ratings assigned by international credit-rating agencies. Included in the Group and Company cash balances are amounts of €10m (2012: €nil) relating to the regulatory over- recoveries payable at year end (note 16) and security deposits of €2.9m (2012: €0.3m). Included in the Group’s cash balances is €33.8m (2012: €89.3m) which represents cash which can only be used for the purposes of the EWIC asset. Included in the Group’s cash balances is a further €31.8m (2012: €17.3m) held on trust for market participants in the SEM, €14.4m (2012: €8.6m) held in SEM collateral reserve accounts (security accounts held in the name of market participants), with an equivalent amount included in trade payables and €4.8m (2012: €0.3m) of Public Service Obligation levy (PSO) funds. Included in the Company’s cash balances is €23.9m (2012: €13.0m) held on trust for market participants in the SEM, €10.8m (2012: €6.5m) held in SEM collateral reserve accounts (security accounts held in the name of market participants), with an equivalent amount included in trade payables and €4.8m (2012: €0.3m) of PSO funds. During the year, the Company advanced interest free loans totalling €0.7m (2012: €120.7m) to EirGrid Interconnector Limited and injected equity of €nil (2012: €10.0m). This is classified as an investment in subsidiary in the Company Cash Flow Statement. The Group had unutilised borrowing facilities of €67.8m (2012: €144.0m) at the Balance Sheet date. The majority of these unutilised borrowings have been arranged in order that the Group has sufficient standby facilities to meet unbudgeted/unexpected constraint payments.
106 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
20. Operating Lease Arrangements Future minimum lease payments under non-cancellable operating leases, which are primarily in respect of the Group’s buildings and a land lease for the East West Interconnector asset, fall due as follows: Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Not longer than one year 3,042 3,063 3,042 3,063 Longer than one year and not longer than five years 11,502 11,687 11,502 11,687 Longer than five years 38,155 40,992 38,155 40,992
Total 52,699 55,742 52,699 55,742
The operating lease for the Group’s head office building is for a term of 25 years which commenced on 1 March 2007. There was a rental holiday for the first three years of the lease term. The lease cost is based on open market value and is subject to rent review every 5 years. Following a scheduled rent review on 1 March 2012 no adjustment was made to rent payable. The Group has agreed a lease of land in the port of Liverpool, secured via an upfront payment. The agreement includes a break clause after the first 30 years of the lease. After this 30 year term, lease payments will be subject to inflationary increases. There are no significant or unusual restrictions imposed on the Group by the terms of the operating leases.
21. Capital Commitments Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Expenditure contracted for, but not provided for in the Financial Statements 12,105 50,128 - -
The Group has contractual commitments arising from the East West Interconnector project, linking the electricity grids in Ireland and Great Britain, and in respect of property, plant and equipment for SONI.
22. Contingent Liabilities The Group is not aware of any contingent liabilities at the year end.
107 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
23. Retirement Benefits Obligations During the year the Group operated a defined benefit pension plan for employees of the Company and the Executive Director (“EirGrid plan”). A second defined benefit pension plan (“SONI Focus plan”) is operated for employees of SONI Limited. Retirement benefits payable are based on salary and length of service. The most recent actuarial valuations of the assets and the present value of the defined benefit obligations were carried out at 30 September 2013 for both the EirGrid plan and the SONI Focus plan, under the requirements of International Accounting Standard 19: Employee Benefits (IAS 19). The present values of the defined benefit obligations, and the related current service costs and past service costs, were measured using the Projected Unit Credit Method. The amount included in the Balance Sheet arising from the obligations in respect of these defined benefit plans are as follows: Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Present value of funded defined pension obligations 101,946 100,712 74,426 76,130 Fair value of plan assets (91,573) (78,263) (65,174) (54,379)
Net liability 10,373 22,449 9,252 21,751
Deferred tax on net pension obligation (note 9) (1,380) (2,879) (1,157) (2,719)
Net liability after deferred tax 8,993 19,570 8,095 19,032
The amounts in the Consolidated Income Statement may be analysed as follows: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Current service cost 5,735 4,175 Interest cost 4,073 3,858 Expected return on plan assets (3,820) (2,955) Employer pension cost capitalised (584) (632)
Amount included in other operating costs relating to defined benefit schemes 5,404 4,446
The amounts recognised in the Statement of Comprehensive Income are as follows: Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Actuarial gains/(losses) 12,303 (8,676) 12,724 (6,717) Recognition of net pension asset - 1,387 - -
Amount included in the Statement of Comprehensive Income 12,303 (7,289) 12,724 (6,717)
108 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
23. Retirement Benefits Obligations (continued) Movements in the present value of the defined benefit obligations in the current year were as follows:
EirGrid plan SONI Focus plan 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Opening defined benefit obligation 76,130 57,079 24,582 17,892 Current service cost including employee contributions 6,501 5,021 884 776 Interest cost 3,036 2,843 1,037 1,015 Actuarial (gains)/losses (10,830) 11,737 2,688 3,311 Benefits paid (411) (550) (388) (108) Exchange differences - - (1,282) 1,696
Closing defined benefit obligation 74,426 76,130 27,521 24,582
Movements in the present value of the plan assets in the current year were as follows:
EirGrid plan SONI Focus plan 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
Opening fair value of plan assets 54,379 41,333 23,884 19,176 Expected return on plan assets 2,745 2,091 1,075 864 Gains on plan assets 1,894 5,020 2,267 1,352 Employer contributions 5,038 4,998 686 724 Employee contributions 1,529 1,487 120 135 Benefits paid (411) (550) (388) (108) Exchange differences - - (1,245) 1,741
Closing fair value of plan assets 65,174 54,379 26,399 23,884
The principal assumptions used for the purposes of the actuarial valuations were as follows: EirGrid plan SONI Focus plan 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012
Valuation method Projected Unit Projected Unit Projected Unit Projected Unit Discount rate 4.25% 4.00% 4.50% 4.40% State pension increase 1.75% 2.00% 2.70% 2.00% Salary increases 2.25% 2.50% 4.50% 3.80% plus scale plus scale Pension increases 2.25% 2.50% 2.70% 2.00% Inflation 2.00% 2.25% 3.50% 2.80% Revaluation CEO benefit 1.75% n/a n/a n/a
Post-retirement life expectancy for those retiring at age 65 in 2032: - Men 26.4 years 26.3 years 24.1 years 24.1 years - Women 27.7 years 27.6 years 26.8 years 26.7 years
109 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
23. Retirement Benefits Obligations (continued) The discount rate used by the plan actuaries in the calculation of the pension liabilities at the year end were 4.25% (2012: 4.00%) for the EirGrid plan and 4.50% (2012: 4.40%) for the SONI Focus plan. The EirGrid plan discount rate was based on the redemption yield on Euro denominated corporate bonds extrapolated to an approximate duration of 27 years (2012: 27 years). The SONI Focus plan discount rate was based on the redemption yield on Sterling denominated corporate bonds extrapolated to an approximate duration of 20 years (2012: 20 years). This is consistent with the estimated term of the post-retirement benefit obligations. There are inherent uncertainties surrounding the financial and demographic assumptions adopted by the Group. As an indication of the impact of changes in actuarial assumptions, a 50 basis point decrease in discount rates would increase the net pension plan liability by approximately 119%. The major categories of plan assets, and the expected rate of return at the Balance Sheet date for each category, are as follows: EirGrid plan Expected Return Fair Value 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 % % € ’000 € ’000
Equities 7.00% 7.00% 36,381 26,571 Bonds 3.75% 3.50% 11,251 7,151 Property 5.50% 5.50% 889 846 Cash 1.00% 1.00% 4,396 8,404 Alternatives 7.00% 7.00% 8,793 7,627 Annuities 4.25% 4.00% 3,464 3,780
Fair value of plan assets 65,174 54,379
SONI Focus plan Expected Return Fair Value 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 % % € ’000 € ’000
Equities 6.60% 5.80% 15,342 12,916 Gilts and bonds 3.90% 2.60% 10,904 10,613 Other 0.50% 0.50% 153 355
Fair value of plan assets 26,399 23,884
The expected long-term return on assets in 2013 is based on the discount rate. In 2012 the expected long-term return on assets was based on the current level of expected returns on risk free investments, the historical level of risk premium associated with other asset classes and the expectation for future returns for each asset class. The actual return on Group scheme assets was a gain of €7.9m. The actual return on the EirGrid plan scheme assets was a gain of €4.6m. During the year ending 30 September 2014 the Group expects to contribute approximately €6.0m to its defined benefit plans.
110 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
23. Retirement Benefits Obligations (continued) The history of experience adjustments is as follows: 2013 2012 2011 2010 2009 € ’000 € ’000 € ’000 € ’000 € ’000
Present value of defined benefit obligation 101,947 100,712 74,971 74,205 65,285 Fair value of plan assets (91,574) (78,263) (60,509) (53,772) (42,997) Derecognition of net pension asset - - 1,284 - -
Deficit 10,373 22,449 15,746 20,433 22,288
Experience adjustments on plan liabilities 8,142 (15,048) 7,944 933 2,373
Experience adjustments on plan assets 4,161 6,372 (2,806) 486 2,687
As the SONI Focus plan has been closed to new members since 1998, the Group also operates an approved defined contribution scheme, “SONI Options plan” for employees of SONI Limited. Contributions are paid by the members and employer at fixed rates. The benefits secured at retirement reflect each employee’s accumulated fund and the cost of purchasing benefits at that time. Death benefits are insured on a group basis and may be paid in the form of a lump sum and/or survivor’s pension. The assets of the scheme are held in a separate trustee administered fund. The pension charge for the year represents the defined employer contribution and amounted to €0.2m (2012: €0.2m).
111 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
24. Interest in Joint Venture
Group The Group achieved control of SEMO through its acquisition of SONI Limited on 11 March 2009. From the effective date of the acquisition 100% of the results of SEMO are included in the Consolidated Income Statement.
Company The Single Electricity Market (SEM) is the wholesale electricity market operating in Ireland and Northern Ireland, which came into operation on 1 November 2007. On that date the old wholesale electricity market in Ireland ceased and the new SEM commenced. SEMO was established as the contractual joint venture between the Company and SONI Limited responsible for the operation of the wholesale electricity market for the island of Ireland from 1 November 2007 onwards. The Company has a 75% interest in SEMO. The Company’s share of assets, liabilities, income and expenses has been included in the Company Financial Statements using the proportionate consolidation method. The following amounts are included in the Company Financial Statements as a result of the proportionate consolidation of SEMO into the Company accounts: 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Non-current assets 13,318 16,452 Current assets 67,286 84,200
Total assets 80,604 100,652
Total equity 15,574 9,670
Current liabilities 65,030 90,982
Total liabilities 65,030 90,982
Total equity and liabilities 80,604 100,652
Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Revenue 139,525 155,203 Expenses (133,522) (153,972)
Operating profit 6,003 1,231
112 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
25. Borrowings Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000 Repayable within one year: Bank overdrafts - 69 - 69 Bank loans repayable by instalments 18,709 23,614 7,809 14,394
Total current borrowings 18,709 23,683 7,809 14,463
Repayable after more than one year by instalments: Between one and two years 16,937 22,507 7,726 8,255 Between two and five years 43,352 44,433 25,203 25,625 In five years or more 323,418 336,872 221,435 244,048
Total non-current borrowings 383,707 403,812 254,364 277,928
Total borrowings outstanding 402,416 427,495 262,173 292,391
All borrowings by subsidiaries are guaranteed by EirGrid plc through a cross-guarantee structure, see note 28 for further details. Bank loans are unsecured loans. A proportion of the loans have been converted from floating interest rate to fixed interest rate by using interest rate swap contracts, see note 27 for further details.
113 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
26. Categories of Financial Assets and Financial Liabilities Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000 Financial assets classified as loans and receivables: Trade receivables 21,758 75,212 10,613 53,147 Amount owed by subsidiary undertakings - - 196,433 182,272 Cash and cash equivalents 172,254 164,745 116,508 67,453
Total 194,012 239,957 323,554 302,872
Financial assets fair valued through profit and loss: Derivative financial instruments - 4 - -
Total financial assets 194,012 239,961 323,554 302,872
Financial liabilities classified as other liabilities: Trade payables 81,017 116,451 67,542 94,568 Amount owed to subsidiary undertakings - - 22,316 4,111 Borrowings and bank overdrafts 402,416 427,495 262,172 292,391
Total 483,433 543,946 352,030 391,070
Financial liabilities designated as hedging instruments: Derivative financial instruments (note 27) 62,433 84,990 42,183 57,066
Financial liabilities fair valued through profit and loss: Derivative financial instruments 26 - - -
Total derivative financial instruments 62,459 84,990 42,183 57,066
Total financial liabilities 545,892 628,936 394,213 448,136
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value of the Group’s and Company’s interest rate swaps at the reporting date are determined by discounting the future cash flows using market observable interest rate curves at the reporting date and hence are considered to be Level 2 instruments. The fair value of the Group’s foreign exchange forward contracts at the reporting date are determined by measuring quoted forward exchange rates matching the maturity of the contracts and hence are considered to be Level 2 instruments. There have been no transfers between valuation levels during the year.
114 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
27. Derivative Financial Instruments and Financial Risk Management
Capital management The Company, on vesting of the transmission system operator, had capital introduced under the Transfer Scheme dated 1 July 2006. This capital forms the core capital of the Company. There have been no changes to the core capital of the Company during the year. Any changes to the capital structure are subject to approval of the Department of Communications, Energy and Natural Resources. The Company is funded on an ongoing basis through the regulatory tariff regime. The Company has put in place bank facilities to manage liquidity and cash flow to allow for timing mismatches between regulatory tariff receipts and working capital requirements. Significant capital expenditure projects are funded through external borrowings and subject to approval by the Department. The Company’s borrowing powers are set through legislation and individual borrowings are subject to approval by the Department. On 14 March 2008, the Electricity Regulation (Amendment) (EirGrid) Act 2008 was signed into Irish Law. Primarily this Act empowered the Company to construct the East West Interconnector and also increased the borrowing powers of the Company to a limit of €750m. The Company’s policy is to secure a low, stable, acceptable cost of funds over time, subject to acceptable levels of risk. The Company also maintains a balanced maturity profile in relation to its core borrowing portfolio so as to avoid peaked repayments and refinancing risk. Further details of the borrowing facilities and the related hedging strategies are set out below.
Overview of financial risk management The Group’s funding, liquidity and exposure to interest and foreign exchange rate risks are managed by the Group’s treasury function. Policies to protect the Group from these and other risks are regularly reviewed and approved by the Board. The key financial risks to which the Group is exposed relate to liquidity, capital, market (including interest rate) and capital risk both arising from day to day operations and from key capital expenditure projects. The Group manages its liquidity and capital risk for day to day operations through the regulatory process for establishing tariffs with the Commission for Energy Regulation (CER) and the Utility Regulator Northern Ireland (URegNI) and through internal budgeting and monitoring of variances. The Group has negotiated stand-by facilities with various banks to support cash flow projections and requirements. For capital expenditure, the Group has in place key expenditure approval and project management processes.
Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group is exposed to credit risk from the counterparties with whom it holds its bank accounts. The Group mitigates its exposure by spreading funds across a number of financial institutions which have a sovereign guarantee on customer deposits or have a credit rating from an independent rating agency consistent with the treasury policy approved by the Board. The Group is also exposed to counterparty risk on undrawn facilities and interest rate swap instruments. Consistent with its Treasury Policy the Group deals only with counterparties with high credit ratings to mitigate this risk. The maximum exposure to credit risk is represented by the carrying amounts of financial assets as presented on the Balance Sheet. The Company discharges its Market Operator obligations through a contractual joint venture with SONI Limited. Under the terms of the Trading and Settlement Code for the SEM each participant is required to provide credit cover at a level notified to it by the Market Operator. Such credit cover can be provided by means of an irrevocable standby letter of credit or a cash deposit held in a SEM Collateral Reserve account. Any bad debt arising in the SEM, to the extent that it exceeds the available credit cover, is shared by generators and is not borne by the Market Operator. SEMO trade debtors included in Group trade debtors as at 30 September 2013 were €7.9m (2012: €65.2m). SEMO trade debtors included in Company trade debtors as at 30 September 2013 were €5.9m (2012: €48.9m).
115 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
27. Derivative Financial Instruments and Financial Risk Management (continued) The average credit period on trade receivables is two months. Included in the trade receivable balance are debtors which are past due at the reporting date which have not been provided as the amounts are still considered recoverable. The ageing profile of these past due but not impaired balances is: Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000
60 to 90 days 7 6 7 6 90 to 120 days 7 104 7 104 Greater than 120 days 247 892 241 892
Total 261 1,002 255 1,002
The credit quality of Group and Company financial assets that are neither past due nor impaired is considered satisfactory.
Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Trade payables are paid at the end of the month following the month of the invoice. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. All trade payables at the reporting date are within this credit timeframe. Where the Company causes the late payment of an invoice, interest is paid to the supplier. The Group has access to funding facilities, the total unutilised amount of which was €67.8m at the Balance Sheet date (2012: €144m). The majority of these unutilised borrowings have been arranged in order that the Group has sufficient standby facilities to meet unbudgeted constraint payments. The Group expects to meet its other obligations from operating cash flows. The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. Less than 1 to 12 1 to 5 5+ Group 1 month months years years Total € ’000 € ’000 € ’000 € ’000 € ’000 30 Sep 2013 Non interest bearing – trade payables 81,017 - - - 81,017 Borrowings and bank overdrafts - 37,895 129,205 458,115 625,215
Total 81,017 37,895 129,205 458,115 706,232
30 Sep 2012 Non interest bearing – trade payables 116,451 - - - 116,451 Borrowings and bank overdrafts - 44,029 138,553 489,369 671,951
Total 116,451 44,029 138,553 489,369 788,402
116 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
27. Derivative Financial Instruments and Financial Risk Management (continued) Less than 1 to 12 1 to 5 5+ Company 1 month months years years Total € ’000 € ’000 € ’000 € ’000 € ’000 30 Sep 2013 Non interest bearing – trade payables 67,542 - - - 67,542 Borrowings and bank overdrafts - 19,271 75,307 316,695 411,273
Total 67,542 19,271 75,307 316,695 478,815
30 Sep 2012 Non interest bearing – trade payables 94,568 - - - 94,568 Borrowings and bank overdrafts - 27,323 81,011 357,241 465,575
Total 94,568 27,323 81,011 357,241 560,143
The cash flow hedges are expected to occur and effect the income statement over a period of 22 years. There are no forecast transactions no longer expected to occur. The amounts recognised and reclassified out of the cash flow hedge reserve are as follows: Group Company 30 Sep 2013 30 Sep 2012 30 Sep 2013 30 Sep 2012 € ’000 € ’000 € ’000 € ’000 Gains/(losses) arising during the year 6,275 (41,050) 4,861 (26,004) Reclassified to income statement (included in finance costs) 8,595 951 10,022 5,750 Reclassified to Property, Plant and Equipment 7,634 8,483 - - Foreign Exchange 53 (100) - -
Total 22,557 (31,716) 14,883 (20,254)
117 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
27. Derivative Financial Instruments and Financial Risk Management (continued) Market Risk Interest rate risk management The Group and Company are exposed to interest rate risk as they borrow funds at floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings through the use of interest rate swap contracts. The following interest rate swap contracts were in place at the year end: Group Average contracted Notional principal Interest rate swap interest rate amount asset/(liability) Derivatives that are designated and effective as 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep hedging instruments carried 2013 2012 2013 2012 2013 2012 at fair value, expiring in: % % € ’000 € ’000 € ’000 € ’000
Less than one year 4.7% 4.0% 2,851 6,122 (84) (150) Between one and two years 4.8% 4.7% 6,614 6,015 (345) (298) Between two and five years - 4.8% - 8,992 - (714) In five years or more 3.8% 3.8% 396,035 433,000 (62,004) (83,828)
Total active swap contracts 3.8% 3.9% 405,500 454,129 (62,433) (84,990)
Company Average contracted Notional principal Interest rate swap interest rate amount asset/(liability) Derivatives that are designated and effective as 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep hedging instruments carried 2013 2012 2013 2012 2013 2012 at fair value, expiring in: % % € ’000 € ’000 € ’000 € ’000
Less than one year - 4.0% - 6,122 - (150) Between one and two years ------Between two and five years ------In five years or more 3.7% 3.8% 261,772 260,870 (42,183) (56,916)
Total active swap contracts 3.7% 3.8% 261,772 266,992 (42,183) (57,066)
Under interest rate swap contracts, the Group and Company agree to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group and Company to mitigate the risk on the cash flow exposure on the issued variable rate interest on borrowings. The Group’s and Company’s interest rate swaps settle periodically and the floating rates are reset between a three and six monthly basis. The Group and Company will pay or receive the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group’s and Company’s cash flow exposure resulting from variable interest rates on borrowings. The net settlements under the interest rate swaps and the interest payments on the borrowings occur simultaneously. The amount deferred in equity is recognised in profit or loss over the period that the floating rate interest payments on debt impact profit or loss.
118 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
27. Derivative Financial Instruments and Financial Risk Management (continued) Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the combined exposure to interest rates for borrowings and derivative instruments at the Balance Sheet date. A 50 basis point increase or decrease is used when reporting interest rate risk and represents management’s assessment of reasonably possible changes in interest rates. If current and forward interest rates had been 50 (2012: 100) basis points higher/lower and all other variables were held constant, the Group’s:
• Profit for the year to 30 September 2013 would have been impacted by €0.1m (2012: €0.1m); and
• Other equity reserves would have been impacted by €37.0m (2012: €42.6m), mainly as a result of changes in the fair value of its cash flow hedges.
If current and forward interest rates had been 50 (2012: 100) basis points higher/lower and all other variables were held constant, the Company’s:
• Profit for the year to 30 September 2013 would have been impacted by €nil (2012: €0.1m); and
• Other equity reserves would have been impacted by €25.6m (2012: €29.7m), mainly as a result of changes in the fair value of its cash flow hedges.
Foreign currency exchange risk management The Group is exposed to foreign currency risk through the operations of its two subsidiaries incorporated in Northern Ireland, which have a Sterling functional currency and through Sterling capital expenditure and Sterling VAT receipts resulting from the East West Interconnector asset. The risk arising from subsidiaries with Sterling functional currencies is partially mitigated by the majority of both revenue and expenditure from UK operations being denominated in Sterling. The Group has sought to further reduce this exposure by funding operations in Northern Ireland using Sterling borrowings. The risk arising from Sterling VAT receivables arising from the East West Interconnector asset is partially mitigated by the Group entering into foreign exchange forward contracts.
Foreign currency exchange sensitivity analysis The sensitivity analyses below have been determined based on the Group’s exposure to its Sterling operations as at the Balance Sheet date. The SONI TSO segment recorded an operating profit of €18.0m during the year to 30 September 2013 (2012: operating loss of €4.6m). A 20% increase or decrease has been used when reporting foreign currency exchange risk and represents management’s assessment of reasonably possible changes in exchange rates. If exchange rates had been 20% higher/lower and all other variables were held constant, the Group’s profit before tax for the year to 30 September 2013 would be impacted by €6.1m (2012: €1.9m). Other equity reserves would have been impacted by €0.3m (2012: €1.4m).
119 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
28. Related Party Transactions
Group EirGrid plc is an Irish commercial semi-state organisation, and as such is a related party of the Government of Ireland. John O’Connor, Fintan Slye and Niamh Cahill hold one share each in the share capital of the Company on behalf of the Minister for Public Expenditure and Reform, one ordinary share of the Company is held by the Minister for Communications, Energy and Natural Resources and the remainder of the issued share capital is held by the Minister for Public Expenditure and Reform, or on his behalf. On retirement, Bernie Gray transferred her shareholding to John O’Connor. Board members had no beneficial interest in the Group at any time during the year. In common with many other entities, the Group deals in the normal course of business with other Government sponsored bodies such as ESB. An Infrastructure Agreement is in place between the Group and ESB under the auspices of the Commission for Energy Regulation (CER), in relation to the roles of owner and operator of the transmission system. The charges to the Consolidated and Company Income Statements under this Agreement were as follows: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Transmission asset owner charge 162,501 147,699
At 30 September 2013 a total of €31.8m (2012: €27.5m) was payable to ESB under this Agreement. The movement in this balance was as follows: 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Opening balance 27,445 30,765 Charges during the year 162,501 147,699 Payments made during the year (158,105) (151,019)
Closing balance 31,841 27,445
This outstanding balance is unsecured and payable in cash and cash equivalents. The remuneration of key management (those people having the authority and responsibility for planning, directing and controlling the activities of the Group) during the year was as follows: Year to Year to 30 Sep 2013 30 Sep 2012 € ’000 € ’000
Short-term benefits 185 168 Post-employment benefits 26 68
Total 211 236
120 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
28. Related Party Transactions (continued) Company Transactions between the Company and the related parties and the balances outstanding are disclosed below: Revenue Charges Amounts Amounts from received owed by owed to Interest Interest related from related related Year to 30 September 2013 receivable payable party related party party party € ’000 € ’000 € ’000 € ’000 € ’000 € ’000
SONI Ltd 461 - - 4,204 6,212 - EirGrid Interconnector Ltd - - - - 156,878 - EirGrid UK Holdings Ltd 522 - - 340 10,500 - EirGrid Telecoms Ltd - - - - 588 -
Total 983 - - 4,544 174,178 -
Revenue Charges Amounts Amounts from received owed by owed to Interest Interest related from related related Year to 30 September 2012 receivable payable party related party party party € ’000 € ’000 € ’000 € ’000 € ’000 € ’000
SONI Ltd 323 - - 867 6,548 - EirGrid Interconnector Ltd - - - - 161,182 - EirGrid UK Holdings Ltd 543 - - 395 10,444 - EirGrid Telecoms Ltd ------
Total 866 - - 1,262 178,174 -
At 30 September 2013 €174.2m (2012: €178.2m) was due to the Company from its subsidiaries. During the year, the Company advanced €0.7m (2012: €10.0m) to EirGrid Interconnector Limited via an intercompany loan and on-lent €nil (2012: €120.7m) of debt. The Company has made total advances of €31.7m (2012: €31.0m) to EirGrid Interconnector Limited, and on-lent total debt of €285.0m (2012: €285.0m). Management estimate that on-lent interest free debt will be repaid on a schedule matching the terms of the on-lent debt. The terms of interest free intercompany debt are such that the intercompany debt portion may only be repaid once commercial funding has been repaid. The Company has recognised an investment of €155.7m (2012: €161.8m) in EirGrid Interconnector Limited, representing the present value estimate of the commercial rate of interest foregone by the Company over the life of these loans (note 13). Management estimate that on-lent interest free debt will be repaid on a schedule matching the terms of the on-lent debt. Over the life of these loans notional interest will be charged to EirGrid Interconnector Limited such that by the repayment date the balances reflect the initial amounts lent. During the year €8.5m (2012: €5.3m) was recharged under this arrangement.
121 EIRGRID PLC ANNUAL REPORT & ACCOUNTS 2013
28. Related Party Transactions (continued) All borrowings by subsidiaries are guaranteed by EirGrid plc through a cross-guarantee structure. The Company has issued letters of support for its EirGrid UK Holdings Limited and EirGrid Interconnector Limited subsidiaries. EirGrid plc has given a Parent Company Undertaking to SONI Limited to the value of £10m (2012: £10m). The Company has entered into a contract with another Group subsidiary, EirGrid Interconnector Limited, to licence the East West Interconnector asset.
29. Post Balance Sheet Events There have been no significant events affecting the Group or Company since the year end.
30. Approval of Financial Statements The Board approved the Financial Statements on 18 December 2013.
122 Group Structure
plc
* **
Interconnector UK Holdings Telecoms Limited Limited Limited
Tynagh Power Station, Co. Galway. * SONI is a 100% subsidiary of EirGrid UK Holdings Limited ** SEMO is a joint venture between EirGrid plc and SONI Limited The Oval, An Oval, 160 Shelbourne Road, 160 Bóthar Shíol Bhroin, Ballsbridge, Droichead na Dothra, Dublin 4. Baile Átha Cliath 4.
Tel + 353 (0)1 677 1700 Fax + 353 (0)1 661 5375 [email protected]
www.eirgrid.com